ch. 5

• measures how much one variable responds to another
• numerical measure of responsiveness of Qd or Qs to one of its determinants

% change in quantity/ % change in Price

(end value- start value)/midpoint * 100

• -close substitutes are available
• -narrowly defined goods (blue jeans rather than just clothing)
• -if item is a luxury
• -in the long run

• Price E. is = 0
• vertical line
• no price sensitivity

• relatively steep
• low sensitivity
• less than 1 PE<1

• PE = 1
• intermediate slope

PE>1

• horizontal line
• PE = infinity

price * quantity

• move in opposite directions
• negative correlations

• move in the same direction
• positive correlation

the flatter the slope the higher the elasticity

the steeper the slope the lower the elasticity

• depends on the flexibility of sellers to change amount of good they produce
• (ex: its harder to produce more beachfront)

higher/ more elastic

how the quantity demanded changes as consumer income changes

% change in quantity demanded/ % change income

positively

negatively

measures how the quantity demanded of one good responds to a change in the price of another good

% change in Qd of good 1/ % change in price of good #2

positively

negatively