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Elasticity

Elasticity. The coefficient of elasticity is a measure of the responsiveness of a dependent variable to a change in an independent variable. Most Widely Used Elasticities. Price-Elasticity of Demand; Price-Elasticity of Supply; Cross-Elasticity of Demand; and Income-Elasticity of Demand.

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Elasticity

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  1. Elasticity The coefficient of elasticity is a measure of the responsiveness of a dependent variable to a change in an independent variable.

  2. Most Widely Used Elasticities • Price-Elasticity of Demand; • Price-Elasticity of Supply; • Cross-Elasticity of Demand; and • Income-Elasticity of Demand

  3. Demand ( EP ) is a measure of responsiveness of quantity demanded to changes in price. Supply ( ES ) is a measure of responsiveness of quantity supplied to changes in price. Price-Elasticity of:

  4. Determinants of Price-Elasticity of Demand ( EP): • Necessity or Luxury; • Availability of Close Substitutes; • Share of Budget Absorbed; and • Length of Time Considered.

  5. Elasticity and Total Expenditure

  6. The GRE Economics Test If an own price negatively sloped demand curve is described as having constant elasticity with respect to price, the exact meaning of this is that any increase in price would bring about: • an increase in quantity purchased by buyers. • a decrease in quantity purchased by buyers. • an increase in total expenditure by buyers. • a decrease in total expenditure by buyers. • a shift of the demand curve to a new position.

  7. The GRE Economics Test Consumers have budgeted a fixed money amount to buy a certain commodity. Within a certain range of prices, they will spend neither more nor less than this amount on it. Their demand in this price range would properly be designated as: a. in equilibrium d. unit-elastic. b. perfectly elastic. e. perfectly inelastic. c. Highly inelastic but not perfectly so.

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