1. 4 Types of Elasticity
Elasticity Wrap-Up

2. 4 Types of Elasticity Price Elasticity of Demand =Ed
Cross Price Elasticity
Income Elasticity
Price Elasticity of Supply

3. Cross-price elasticity of demand
How quantity demanded of one good responds to a change in price of another good
Substitutes have positive cross-price elasticity Ea,b > 0
Example: Price soda ↑ => Qty D other drinks ↑
Complements have negative cross-price elasticity Ea,b < 0
Example: Price gas ↑ => Qty D large SUV’s ↓
% ∆ in Pgood A
% ∆ in Qty Dgood B
Cross-price Ea,b =

4. Income Elasticity of Demand
Income elasticity of demand- how quantity demanded responds to a change in consumers’ income
EI = % ∆ in Qty Demanded
% ∆ in Income
Normal Goods have positive Income elasticity (normal good = Income ↑, Qty D ↑)
Inferior Goods: EI < (negative income elasticity)
Income elastic: EI > (considered a luxury)
Income inelastic: 1 > EI > 0 (considered a necessity)

5. Elasticity of Supply: How quantity supplied changes when price changes
Elastic: Es > 1
Inelastic:
Es < 1
Determinants of Elasticity of Supply:
Ability to increase quantity produced
Beach front property is inelastic (hard to increase quantity)
Books, cars are elastic
Time Period
Supply is more elastic in long run vs. short run
Time allows companies to produce more

6. Stock Game is Reset You get a second chance…… SP500 +4.8% during game
SP % for 2016