This document discusses key concepts of elasticity including: 1) It defines income elasticity of demand as measuring the responsiveness of demand to changes in income. It can be positive or negative depending on the good. 2) It provides rules and formulas for calculating income elasticity using point and midpoint methods. Examples are given to demonstrate calculations and determine good types. 3) It defines cross elasticity of demand as measuring responsiveness of demand for one good to price changes of another. It can be positive, negative, or zero depending on the goods' relationship. 4) Formulas and examples are given for calculating and interpreting cross elasticity. 5) Price elasticity of supply is defined

1. Elasticity
Part (2)
Prepered by
Dr.Mohamed Osman
Lecturer of public economics faculty of
commerce-Alexandria University

2. Income Elasticity of Demand
Definition :-
*It measures the responsiveness of demand to
change in income.
(Or)
*it measures the ratio of the percentage change in
demand to the percentage change in income.
(Or)
*It measures the degree to which the demand
responds to change in income, other things
being equal.

3. Rules of income elasticity of demand
( Measuring income elasticity of demand)
- We have three equations:-
1-Income Elas.=
2-Income Elas. = . Point.
3-Income Elas. = . Mid-point

4. Sign of income elasticity of demand
- Income elasticity may be positive or negative,
depending on the type of a good :-
1-If income elasticity is Positive > 1 : the good is normal luxury.
2-If income elasticity is Positive < 1 :the good is normal necessary.
3-If income elasticity is Negative :the good is inferior.

5. Example 1
- If income increase by 10% and demand fall by
5%.Calculate the income elasticity of demand
& determine the type of good?
Answer
-Income elasticity = = - 0.5
-Good is inferior

6. Example 2
- If income increase from 1000 to 1500 and
demand increase from 10 to 30, Calculate the
point income elasticity of demand &
determine the type of good?
Answer
I = 1500-1000=500 Q = 30-10=20
-Income elasticity = . = 4
-Good is Normal Luxury

7. Example 3
- If income increase from 1000 to 1500 and
demand increase from 10 to 30, Calculate the
income elasticity of demand & determine the
type of good?
Answer
I = 1500-1000=500 Q = 30-10=20
Income elasticity = . = 2.5
Good is Normal Luxury

8. Cross Elasticity of Demand
Definition:-
*It measures the responsiveness of demand of
(x) to change in price of (Y), other things
equal.
(Or)
*it measures the ratio of the percentage
change in demand of (x) to the percentage
change in price of (y)

9. Rules of Cross elasticity of demand
( Measuring Cross elasticity of demand)
- We have three equations:-
1-Cross Elas.=
2- Cross Elas. = . Point
3- Cross Elas. = . Mid-point

10. Sign of Cross elasticity of demand
-Cross elasticity may be positive or negative,
depending on the relation between goods :-
1-If the cross elasticity is Positive: X & Y are substitute.
2-If the cross elasticity is negative : X & Y are complement.
3-If the cross elasticity is Zero : X & Y are independent.

11. Example 1
-If the price of (Y) increase by 30% & demand of
(X) increase by 60%. Calculate the Cross
elasticity of demand & determine the
relation between the two goods?
Answer
-Cross elasticity = = 2
-Good (x) & (Y) are Substitute

12. Example 2
-If the price of (y) increases from (20) to (50) &
demand of (X) decreases from (300) to (100).
Calculate the point Cross elasticity of demand
& determine the relation between the two
goods?
Answer
-Cross elasticity = . = -0.44
-Good (x) & (Y) are Complement.

13. Example 3
-If the price of (y) increases from (20) to (50) &
demand of (X) decreases from (300) to (100).
Calculate Cross elasticity of demand &
determine the relation between the two
goods?
Answer
-Cross elasticity = . = -1.17
-Good (x) & (Y) are Complement.

14. Price Elasticity of Supply
Definition :-
-It measures the degree to which the quantity
supplied to change in the price level, other
things being equal.
(Or)
-It measures the ratio of the percentage
change in quantity supplied to the
percentage change in the price level.

15. Rules of Price elasticity of Supply
Elas. Of supply=
Example
-If the price of (x) increase 20% & quantity
supplied increase 30 %. Calculate the price
elasticity of supply & explain your result?
Elas. Of supply= =1.5
-It means that if the price increase by 1%, the
quantity supplied will increase by 1.5%

16. *Elas. Of supply = . Point
*Elas. Of supply = . Mid- Point
Example
- If the price of (X) increase from (30) to (50) &
quantity supplied increase from (100) to
(300).calculate the price elasticity of supply, using
the point formula?
Answer
Elas. Of supply = . = 3

17. Example
- If the price of (X) increase from (30) to (50) &
quantity supplied increase from (100) to
(300).calculate the price elasticity of supply,
using the midpoint formula?
Answer
• Elas. Of supply = . = 2
-The sign of the price elasticity of supply must be
positive due to the positive relationship
between the quantity supplied and the price
level.

18. *Price Elasticity of supply & Shapes of supply curve
There are 5 shapes of supply curve which are:
1- Perfectly Inelastic supply Curve:
*Price elasticity of supply = Zero
*Price elasticity of supply is constant
*Quantity supplied of that good will not respond to
any changes in prices.
Px
Q.S
P1
Q.S
P2
S

19. 2- Inelastic Supply curve:
• Price elasticity of supply < 1
• Price elasticity of supply isn't constant.
• any percentage change in prices will cause a smaller
percentage change in the quantity supplied, at any
point on the curve. (% ΔQ.S ˂ %Δ P)(steep).
Px
Q.S
P1
Q.S1
P2
S
Q.S2

20. 3- Unitary supply Curve (unit elastic ):
• Price elasticity of supply = 1
• Price elasticity of supply is constant.
• any percentage change in prices will cause an equal
percentage change in the quantity supplied, at any
point on the curve ( %Δ Q.S = % ΔP )
P
Starting from
the origin
S
Q.s

21. 4- Elastic Supply Curve:
• Price elasticity of supply > 1
• Price elasticity of supply isn't constant.
• any percentage change in prices will cause a greater
percentage change in the quantity supplied, at any
point on the curve. (%ΔQ.S ˃%ΔP)(flat).
P
Flat
S
Q.s

22. 5- Perfectly Elastic supply Curve:
• Price elasticity of supply = 
• Price elasticity of supplied is constant.
• it means that Q.S changes even if P is
constant
Px
Q x
D
Horizontal