Microeconomics

Leeds, von Allmen and Schiming

Chapter 5, Elasticity

1. Defining the Market

   1. Geography

   2. Product characteristics

2. Demand Elasticity

   1. % change in quantity demand with respect to

      1. 1% change in own price

      2. 1% change in prices of other goods

      3. 1% change in consumers' income

3. Calculating Elasticity

4. Definition:

   % change in quantity demanded divided by percent change in price

    

   
    

   Algebraic representation:
   Arc elasticity - The midpoint formula
   Point elasticity

5. Elasticity ranges along the demand curve
   1. Elastic
   2. Inelastic
   3. Elasticity and total revenue
6. Elasticity and Total Expenditures
   1. Total expenditures = total revenue
   2. Total revenue and area under the demand curve
   3. Price changes, total revenue, and elasticity: A two panel graph
7. Determinants of elasticity
   1. Availability of substitutes
   2. Budget share
   3. Time horizon
8. Income elasticity
   1. Normal good
      1. Luxury
      2. Necessity
   2. Inferior good
9. Cross price elasticity
   1. Substitutes
   2. Complements
10. Elasticity of Supply
    1. Availability and substitutability of inputs
    2. Time frame