Lecture 5 The Concept of Elasticity

1
Lecture 5 -The Concept of Elasticity

• Wissinks Words

2
remarks

• Elasticity measures Measurement of the
  percentage change in one variable that results
  from a 1 change in another variable.
• Important for comparing and contrasting demand
  and supply attributes.
• Useful for both intra and inter market
  comparisons.

3

• You can construct several elasticities - once you
  master the technique its easy.
• Why elasticity and not slope?
• Want a unit free measure.

4
demand elasticities

• Go back to the demand function!
• Own price elasticity of demand how sensitive is
  the quantity demanded to a change in the goods
  own price?
• Cross price elasticity of demand how sensitive
  is the quantity demanded to a change in the price
  of some other good?

5

• Income elasticity of demand how sensitive is the
  quantity demanded to a change in income?
• Pay close attention to the terminology developed
  for elasticity measures.

6
supply elasticites

• Really only one to consider in this class.
• Go back to the supply function!
• Own price elasticity of supply how sensitive is
  the quantity supplied to a change in the goods
  own price?
• Pay close attention to the terminology developed
  for elasticity measures.

7
hints

• Inelastic implies price insensitive.
• Elastic implies price sensitive.
• Own price elasticity of demand often reported
  after taking its absolute value.
• Preserve the sign of cross-price elasticity of
  demand and income elasticity of demand - their
  signs are meaningful.

8

• Employ ceteris paribus assumption on other
  variables when calculating a particular
  elasticity.
• Dont forget Can use elasticity for both intra
  and inter market comparisons.