1. elasticity Measure of responsiveness of demand, supply…

2. Price elasticity of demand TR=PQ P Q D Unit elastic, |E|=1 Inelastic range |E|<1 Elastic range, |E|>1 Elastic: |E|>1, |%  Q|>|%  P|, don’t increase P Inelastic: |E|<1, ------ < ------, increase P

3. Arc elasticity Point elasticity (requires knowledge of demand’s functional form) Q = a – b P  Q/Q)/(  P/P) = (  Q/  P)(P/Q) E = - b (P/Q) If demand variables are written in log form then: ln Q = a + b ln P Then differential leads to: dQ/Q = -b dP/P

4. Determinants of elasticity Availability of substitutes Fraction of income spent Time

5. Incentives and elasticity (bad)Private health insurance and moral hazard (good)commission structure of erealty.com Other types of elasticity -Income -Cross-price

6. TR, MR and Demand TR= PQ,MR=  (TR)/  Q D MR |E|=1