Elasticities of Supply and Demand

A measure of how the responsiveness of some quantity to a chnage in prices or income

Measures how responsive the demand for a good is to changes in its own price

% change in quantity demanded/% change in price

(∆ quantity)/[(QA+QB)/2/(∆ price)/[(PA+PB)/2]

Demand is price elastic

Demand is price inelastic

Demand is unit-elastic

Quantity demanded does not change with changes in price. Demand curve is a vertical line

Quantity demanded falls to zero with any infinitesimal small increase in price and quantity demanded increases enormously with any infinitesimal decrease in price. The demand curve is a horizontal line

The total value of purchases of a good. The price multiplied by the quantity

% Δ in quantity > % Δ in price➔price rise will reduce total expenditure

% Δ in quantity < % Δ in price➔price rise will increase total expenditure

% Δ in quantity = % Δ in price➔price rise will have no effect on total expenditure

Availability of close substitutes, whether the good is a necessity or a luxury, time

It measures how responsive demand for one good is to chnages in the price of some other good

%Δ quantity demanded of good X/%Δ price of good Y

Positive

Negative

Zero

Measures how responsive demand for one good is to changes in consumers' income

%Δ quantity demanded of good X/%Δ income

Positive

Negative

YED >1

YED<1

Measures how responsive a supply of a good is to changes in that good's price

%Δ quantity supplied/%Δ price

Elastic

Inelastic

Unit-elastic

Availability of Inputs, time

The study of the change in consumers' and producers' wellbeing

Difference between the market price and a person's WTP

Difference between the market price and a producer's WTA

Measures the total net gain to consumers and producers and thus measures the economic welfare of a market