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| OTHER ELASTICITY PAGES: ELASTICITY (MAIN PAGE) PRICE ELASTICITY OF DEMAND PRICE ELASTICITY OF DEMAND AND TOTAL REVENUE THE MIDPOINT FORMULA TAX INCIDENCE AND ELASTICITY |
| Other Elasticities: (Price) Elasticity of Supply Income Elasticity of Demand Cross (Price) Elasticity of Demand |
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(Price) Elasticity of Supply
The elasticity of supply also called the price elasticity of supply, is a
measurement of the responsiveness of the quantity supplied to a change in
price. The formula for the price elasticity of supply is:
Price elasticity of supply = the percentage change in quantity supplied
divided by the percentage change in price.
This formula will yield a positive number, since the quantity supplied
changes in the same direction as a change in price (due to the law of
supply, and an upward sloping supply curve).
The numerical value of the price elasticity of supply depends on the ability
of suppliers to readily change production inputs.
In the short run, some input levels will be fixed. In the long run, all inputs
are variable. Time is the predominant factor in determining the price
elasticity of supply. The longer the time frame, the more elastic the supply
is.
The elasticity of supply also called the price elasticity of supply, is a
measurement of the responsiveness of the quantity supplied to a change in
price. The formula for the price elasticity of supply is:
Price elasticity of supply = the percentage change in quantity supplied
divided by the percentage change in price.
This formula will yield a positive number, since the quantity supplied
changes in the same direction as a change in price (due to the law of
supply, and an upward sloping supply curve).
The numerical value of the price elasticity of supply depends on the ability
of suppliers to readily change production inputs.
In the short run, some input levels will be fixed. In the long run, all inputs
are variable. Time is the predominant factor in determining the price
elasticity of supply. The longer the time frame, the more elastic the supply
is.
Income Elasticity of demand
Income elasticity of demand measures the responsiveness of the quantity
demanded to a change in income. The formula for the income elasticity of
demand is:
Income elasticity of demand = the percentage change in the quantity
demanded divided by the percentage change in income
A normal good would have an income elasticity of demand that is greater
than zero (a positive number).
An inferior good would have an income elasticity of demand that is less than
zero (a negative number).
For normal goods, a necessity would have a relatively low income elasticity
of demand while a luxury would have a relatively high income elasticity of
demand.
Income elasticity of demand measures the responsiveness of the quantity
demanded to a change in income. The formula for the income elasticity of
demand is:
Income elasticity of demand = the percentage change in the quantity
demanded divided by the percentage change in income
A normal good would have an income elasticity of demand that is greater
than zero (a positive number).
An inferior good would have an income elasticity of demand that is less than
zero (a negative number).
For normal goods, a necessity would have a relatively low income elasticity
of demand while a luxury would have a relatively high income elasticity of
demand.
Cross (Price) Elasticity of Demand
The cross elasticity of demand, also called the cross-price elasticity of demand, measures the degree to
which different goods are related. It measures the responsiveness of quantity demanded of one good
to a price change of another good.
The formula for the cross elasticity of demand is:
cross elasticity of demand = the percentage change in the quantity demanded of one good divided by
the percentage change in the price of another good
If this formula yields a positive number, it means that as the price of one good increases, the quantity
demanded of the other good increases: the goods are substitutes. The higher the cross elasticity, the
closer the goods serve as substitutes.
If this formula yields a negative number, it means that as the price of one good increases, the quantity
demanded of the other good decreases: the goods are complements. Consumers tend to buy the two
goods together, as if they were a "package deal".
The cross elasticity of demand, also called the cross-price elasticity of demand, measures the degree to
which different goods are related. It measures the responsiveness of quantity demanded of one good
to a price change of another good.
The formula for the cross elasticity of demand is:
cross elasticity of demand = the percentage change in the quantity demanded of one good divided by
the percentage change in the price of another good
If this formula yields a positive number, it means that as the price of one good increases, the quantity
demanded of the other good increases: the goods are substitutes. The higher the cross elasticity, the
closer the goods serve as substitutes.
If this formula yields a negative number, it means that as the price of one good increases, the quantity
demanded of the other good decreases: the goods are complements. Consumers tend to buy the two
goods together, as if they were a "package deal".
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