Econ: Elasticity


inelastic-demand
Elasticity is the degree to which a quantity demanded or a quantity supplied changes in response to a change in price. The degree of elasticity tells how responsive consumers and producers will be to a change in the price of a good or service.

Demand elasticity is a measure of how responsive consumers are to changes in price. Demand elasticity is influenced by such factors as the availability of substitutes, the product’s price relative to income, whether the product is a necessity or a luxury, and the time needed to adjust to a price change. For elastic demand, a rise or fall in price of a good greatly affects the amount people are willing to buy. Demand is inelastic if a change in price does not result in a substantial change in the quantity demanded. Consumers are not flexible and will purchase the item no matter what it costs.

Supply elasticity is a measure of how responsive producers are to change in price. Supply elasticity is influenced by such factors as the availability and mobility of inputs, a producer’s storage capacity, and the time needed to adjust to a price change. A producer whose supply is elastic will likely respond to an increase in price with an increase in quantity supplied. A producer whose supply is inelastic is unable to respond to changes in price.


Homework:
5.6 What Is Demand Elasticity (read pp.87-91)
5.7 What is Supply Elasticity (read pp.91-95)

Arrows-02-june

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