Elasticity

1
Elasticity

• The coefficient of elasticity is a measure of the
  responsiveness of a dependent variable to a
  change in an independent variable.

2
Most Widely Used Elasticities

• Price-Elasticity of Demand
• Price-Elasticity of Supply
• Cross-Elasticity of Demand and
• Income-Elasticity of Demand

3
Price-Elasticity of

• Demand ( EP ) is a measure of responsiveness of
  quantity demanded to changes in price.

• Supply ( ES ) is a measure of responsiveness of
  quantity supplied to changes in price.

4
Determinants of Price-Elasticity of Demand ( EP )

• Necessity or Luxury
• Availability of Close Substitutes
• Share of Budget Absorbed and
• Length of Time Considered.

5
Elasticity and Total Expenditure
6
The GRE Economics Test

• If an own price negatively sloped demand curve
  is described as having constant elasticity with
  respect to price, the exact meaning of this is
  that any increase in price would bring about
• an increase in quantity purchased by buyers.
• a decrease in quantity purchased by buyers.
• an increase in total expenditure by buyers.
• a decrease in total expenditure by buyers.
• a shift of the demand curve to a new position.

7
The GRE Economics Test

• Consumers have budgeted a fixed money amount to
  buy a certain commodity. Within a certain range
  of prices, they will spend neither more nor less
  than this amount on it. Their demand in this
  price range would properly be designated as
• a. in equilibrium d. unit-elastic.
• b. perfectly elastic. e. perfectly inelastic.
• c. Highly inelastic but not perfectly so.