OTHER ELASTICITY PAGES: ELASTICITY (MAIN PAGE)PRICE ELASTICITY OF DEMANDPRICE ELASTICITY OF DEMAND AND TOTAL REVENUETHE MIDPOINT FORMULATAX INCIDENCE AND ELASTICITY |

Other Elasticities:(Price) Elasticity of Supply Income Elasticity of Demand Cross (Price) Elasticity of Demand |

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.

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.

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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