This document provides formulas and examples for calculating different types of elasticities, including:
Income elasticity of demand, which measures the responsiveness of quantity demanded to a change in income. An example calculates the income elasticity of demand for coal.
Price elasticity of demand, which is measured using the formula that takes the percentage change in quantity demanded over the percentage change in price. An example shows demand is inelastic in this case.
Cross price elasticity, which measures the responsiveness of the quantity demanded of one good to a change in the price of another good. It is positive if goods are substitutes and negative if they are complements. Closeness of substitutes impacts the size of the
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Economics - Concept of Demand and Supply ElasticityHPPahilanga
Measures the responsiveness of one variable to a certain change of another variable.
“Measures”, reported as numbers or coefficients.
“Responsiveness”, meaning reaction to change.
Thus, any change causes people to react, and elasticity measures this extent to which the people react.
Proportional measure or percentage change in the variables measures the responsiveness of consumers and producers.
Economics - Concept of Demand and Supply ElasticityHPPahilanga
Elasticity measures the responsiveness of one variable to a certain change of another variable. “Measures”, reported as numbers or coefficients. “Responsiveness”, meaning reaction to change. Thus, any change causes people to react, and elasticity measures this extent to which the people react. Proportional measure or percentage change in the variables measures the responsiveness of consumers and producers.
Are looming economics assignments stressing you out? Don't worry, we've got your back! At EconomicsHomeworkHelper.com, we're here to provide top-notch homework help and guide you towards academic excellence.
Our team of expert tutors is dedicated to assisting you with all your economics homework and assignments. Whether it's microeconomics, macroeconomics, econometrics, or any other subfield, we've got the knowledge and expertise to help you succeed.
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✅ Experienced Tutors: Our tutors have years of experience in the field and are experts in economics.
✅ 24/7 Support: We're here round the clock to assist you, even with last-minute assignments.
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✅ On-Time Delivery: We understand the importance of deadlines and always deliver on time.
Don't let economics homework stress you out! Visit our website today and say goodbye to academic worries. 🎓💪
Economics - Concept of Demand and Supply ElasticityHPPahilanga
Measures the responsiveness of one variable to a certain change of another variable.
“Measures”, reported as numbers or coefficients.
“Responsiveness”, meaning reaction to change.
Thus, any change causes people to react, and elasticity measures this extent to which the people react.
Proportional measure or percentage change in the variables measures the responsiveness of consumers and producers.
Economics - Concept of Demand and Supply ElasticityHPPahilanga
Elasticity measures the responsiveness of one variable to a certain change of another variable. “Measures”, reported as numbers or coefficients. “Responsiveness”, meaning reaction to change. Thus, any change causes people to react, and elasticity measures this extent to which the people react. Proportional measure or percentage change in the variables measures the responsiveness of consumers and producers.
1. Academic Year: 2012/2013
Instructors: Brenda Lynch and PJ Hunt
Contact: brendalynch@ucc.ie
p.hunt@ucc.ie
2. Income elasticity
Formula % ∆ Qd
%∆Y
Example: Qd of coal is 9 ton/hour, then
income rises from €475 to €525pw and Qd
of coal rises to 11 ton/hour. Calculate Yd.
3. Change in Qd is 2, original quantity is 9
giving 2/9. Change in income is €50,
original income is €475 giving €50/€475.
The income elasticity of demand for coal
is 2/9 = 2.11
50/475
4. Yd Greater than 1 (demand is elastic,
normal good, Luxuries)
Yd Positive and less than 1 (demand is
inelastic, normal good, Necessities)
Yd Negative (inferior good)
Cross Price Elasticity
Formula % ∆ Qda
% ∆ Pb
5. And is the % change in demand for good A
caused by the % change in price of good B.
If good B is a substitute for good A, A’s
demand will rise as B’s price rises and CED
will be a positive figure.
If good B is a compliment to good A, A’s
demand will fall as B’s price rises and CED
will be negative.
6. The major determinant of CED is the closeness of
the substitute or compliment. The closer it is the
bigger will be the effect and hence the greater
the CED – either positive or negative.
7. Example: Demand equation for a product is:
Qd = 90 – 8P + 2Y + 2Ps/c
where P = 10, Y = 20 and Ps/c = 9
Find Ed, Yd and CED.
Is the demand for the product inelastic or
elastic?
Is it a normal or inferior good?
Is the product a luxury or a necessity?
Does the product have a close substitute or
compliment?
8. First find a value for Qd. Substitute in the given
values for P, Y & Ps to the equation.
Q = 90 – 8(10) + 2(20) + 2(9)
Q = 68
Now calculate each elasticity using the
following formulae
9. Ed = (ӘQ/ ӘP)(P/Q) = -8(10/68) = -1.18
Inelastic or elastic?
Yd = (ӘQ/ ӘY)(Y/Q) = 2(20/68) = 0.59
Necessity or luxury, normal or inferior?
CED = (ӘQ/ ӘPs/c)(Ps/Q) = 2(9/68) = 0.26
Substitute or compliment, close or not?
10. Total Revenue (TR)
Determine from the demand function Q =
100 - P that MR is zero when TR is
maximised at unit elasticity.
Rearrange equation to get P = 100 - Q
TR = P*Q, TR = (100 – Q) * (Q).
So TR = 100Q – Q2
11. MR = ∆TR / ∆Q = 100 – 2Q. TR is maximised
when MR = 0
Set MR = 100 – 2Q = 0. Q = 50
Recall: P = 100 – Q(50) P = 50
So TR is maximised when P = 50 and Q = 50
12. Ep = ∆Q/∆P * P/Q
∆Q/∆P = first derivative of P = 100 – Q = -1
EP = -1(50/50) = -1
so Ep = -1 where MR = 0 and TR is
maximised.