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Elasticity

Elastcity is the ratio of the percent change in a variable with another variable changes. In
other words, the elasticity measure how big sensitivity or reaction to changes in consumer prices.
Type of elasticity:
1. Measured the percent change in the quantity
2. Measured in percent term
3. The percent change in quantity divided by the percent term
The Price elasticity of Demand is the percent change in quantity demand divided by percent
change in price, stated as positive number. In elasticity of demand, if the price increase the quantiy
will go down and vice versa. Factors that affect the price elasicity of Demand:
1. The period of time thats available to adjust of changing price/ the time period use the
goods.
2. More narrowly defined good
3. The easier its to find about substitutes
4. The larger the goods share of income
There are three forms of price elasticity of demand:
1. Elastic, if price changes result in a change thats larger than the number of items that are
requested. [Ed: P>1]
2. Unitary Elastic, if the percentage price changes as great as the percentage change in the
number of requested items. [Ed: P=1]
3. Inelastic, if the percentage price changes result in changes to increase the number of the
requested goods are smaller.
Extremes:
perfectly elastic, the highest level of possibility of elasticity, where most of the response from
the requested amount to the price. [Ed: P= ]
Perfectly inelastic, the lowest level of elasticity, where the response that the number of
requests goods to changes in price is very small. [Ed: P=0]
Income elasicity of Demand is a change (increase/decrease) rather than the consumers income
will affect demand for various goods. This income elasticity can be calculated by dividing the
percentage change in the number of items that are requested by the percentage change in income.
The Price elasticity of Supply is defined as a measure of the sensitivity of the amount bid an item
with a price of goods itself. In elasticity of supply, if the price increase the quantiy will go up too.
Factors that affect the price elasicity of Supply:
1. More time
2. Inputs more elastic supply to industry
3. Industry more below capacity
4. Good easily stored
5. Applies to short term
There are three forms of price elasticity of Supply :
1. Vertical supply line
2. Horizontal supply line