4: Elasticity
- Page ID
- 158931
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\(\newcommand{\avec}{\mathbf a}\) \(\newcommand{\bvec}{\mathbf b}\) \(\newcommand{\cvec}{\mathbf c}\) \(\newcommand{\dvec}{\mathbf d}\) \(\newcommand{\dtil}{\widetilde{\mathbf d}}\) \(\newcommand{\evec}{\mathbf e}\) \(\newcommand{\fvec}{\mathbf f}\) \(\newcommand{\nvec}{\mathbf n}\) \(\newcommand{\pvec}{\mathbf p}\) \(\newcommand{\qvec}{\mathbf q}\) \(\newcommand{\svec}{\mathbf s}\) \(\newcommand{\tvec}{\mathbf t}\) \(\newcommand{\uvec}{\mathbf u}\) \(\newcommand{\vvec}{\mathbf v}\) \(\newcommand{\wvec}{\mathbf w}\) \(\newcommand{\xvec}{\mathbf x}\) \(\newcommand{\yvec}{\mathbf y}\) \(\newcommand{\zvec}{\mathbf z}\) \(\newcommand{\rvec}{\mathbf r}\) \(\newcommand{\mvec}{\mathbf m}\) \(\newcommand{\zerovec}{\mathbf 0}\) \(\newcommand{\onevec}{\mathbf 1}\) \(\newcommand{\real}{\mathbb R}\) \(\newcommand{\twovec}[2]{\left[\begin{array}{r}#1 \\ #2 \end{array}\right]}\) \(\newcommand{\ctwovec}[2]{\left[\begin{array}{c}#1 \\ #2 \end{array}\right]}\) \(\newcommand{\threevec}[3]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \end{array}\right]}\) \(\newcommand{\cthreevec}[3]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \end{array}\right]}\) \(\newcommand{\fourvec}[4]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \\ #4 \end{array}\right]}\) \(\newcommand{\cfourvec}[4]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \\ #4 \end{array}\right]}\) \(\newcommand{\fivevec}[5]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \\ #4 \\ #5 \\ \end{array}\right]}\) \(\newcommand{\cfivevec}[5]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \\ #4 \\ #5 \\ \end{array}\right]}\) \(\newcommand{\mattwo}[4]{\left[\begin{array}{rr}#1 \amp #2 \\ #3 \amp #4 \\ \end{array}\right]}\) \(\newcommand{\laspan}[1]{\text{Span}\{#1\}}\) \(\newcommand{\bcal}{\cal B}\) \(\newcommand{\ccal}{\cal C}\) \(\newcommand{\scal}{\cal S}\) \(\newcommand{\wcal}{\cal W}\) \(\newcommand{\ecal}{\cal E}\) \(\newcommand{\coords}[2]{\left\{#1\right\}_{#2}}\) \(\newcommand{\gray}[1]{\color{gray}{#1}}\) \(\newcommand{\lgray}[1]{\color{lightgray}{#1}}\) \(\newcommand{\rank}{\operatorname{rank}}\) \(\newcommand{\row}{\text{Row}}\) \(\newcommand{\col}{\text{Col}}\) \(\renewcommand{\row}{\text{Row}}\) \(\newcommand{\nul}{\text{Nul}}\) \(\newcommand{\var}{\text{Var}}\) \(\newcommand{\corr}{\text{corr}}\) \(\newcommand{\len}[1]{\left|#1\right|}\) \(\newcommand{\bbar}{\overline{\bvec}}\) \(\newcommand{\bhat}{\widehat{\bvec}}\) \(\newcommand{\bperp}{\bvec^\perp}\) \(\newcommand{\xhat}{\widehat{\xvec}}\) \(\newcommand{\vhat}{\widehat{\vvec}}\) \(\newcommand{\uhat}{\widehat{\uvec}}\) \(\newcommand{\what}{\widehat{\wvec}}\) \(\newcommand{\Sighat}{\widehat{\Sigma}}\) \(\newcommand{\lt}{<}\) \(\newcommand{\gt}{>}\) \(\newcommand{\amp}{&}\) \(\definecolor{fillinmathshade}{gray}{0.9}\)- 4.1: Introduction
- This page discusses the concept of elasticity in economics, focusing on price elasticity of demand and supply. It explains how these concepts influence business pricing strategies, using examples like Netflix and cigarette taxes. The chapter underscores the significance of understanding elasticity for consumers and firms, as price changes can significantly impact purchasing decisions and revenue across markets.
- 4.2: Price Elasticity of Demand and Price Elasticity of Supply
- This page explains how to calculate price elasticity of demand and supply, highlighting its classification into elastic, inelastic, or unitary categories based on the ratio of percentage changes in quantity and price. It introduces the Midpoint Method for consistent calculations. Additionally, it illustrates how elasticity varies along the demand curve, noting that demand can be elastic or inelastic depending on the specific price and quantity points assessed.
- 4.3: Polar Cases of Elasticity and Constant Elasticity
- This page discusses types of elasticity in economics: infinite elasticity (perfect elasticity), zero elasticity (perfect inelasticity), and constant unitary elasticity. Infinite elasticity means demand or supply changes infinitely with price changes, whereas zero elasticity indicates no change in quantity regardless of price. Constant unitary elasticity reflects a 1% change in price resulting in a 1% change in quantity.
- 4.4: Elasticity and Pricing
- This page highlights the influence of price elasticity on business strategies, detailing how firms adjust pricing in response to supply and demand changes. The relationship between inelastic demand and the ability to pass costs to consumers is illustrated, particularly in industries like agriculture and medical devices.
- 4.5: Elasticity in Areas Other Than Price
- This page discusses Netflix's experiences with price elasticity of demand, highlighting how changes in subscription pricing affected subscriber numbers and stock prices. Despite initial challenges such as a significant price increase and competition from substitutes, Netflix's understanding of consumer behavior led to a rebound in subscriptions over time. The section underscores the importance of elasticity concepts in making informed business decisions and adapting to market dynamics.
- 4.6: Key Terms
- This page defines key economic concepts of elasticity, covering various types such as constant unitary elasticity, cross-price elasticity, elastic and inelastic demand/supply, and price elasticity. It explains how elasticity measures responsiveness to price changes, with applications in savings and labor supply.
- 4.7: Key Concepts and Summary
- This page explores price elasticity, a concept measuring how demand and supply react to price changes. It categorizes elasticity into elastic, unit elastic, and inelastic, with perfect elasticity indicating infinite responsiveness and zero elasticity showing no response. Demand and supply are typically inelastic in the short term but become more elastic over time. The incidence of taxes depends on elasticity, impacting who bears the burden.