Basic Microeconomics Concepts 2

Elasticity | Consumer Choice

Continues from “Basic Microeconomics Concepts 1”

Elasticity | Consumer Choice

**Perfect Competition Based**

Elasticity of Demand

• In a simple term: Consumer’s reaction to change in prices.

[https://www.bloomberg.com/news/articles/2018-04-19/china-s-economic-stats-have-a-credibility-problem]

Price Elasticity of Demand

• Price Elasticity of Demand (P.E.D) represents a rate of the sensitivity of consumers to change in prices.

Price Elasticity of Demand Formula [Photo by laptrinhx.com]

• A negative sign does not matter on PED

Type of Elasticity & Elasticity Value

Elasticity Coefficient Value Table [Photo from Barron’s AP Microeconomics/Macroeconomics 6th Edition]

• The table above shows each type of elasticity with its elasticity value.

Total Revenues

The formula for Calculating Total Revenue [Photo by Intelligent Economist]

Cross-Price Elasticity of Demand

• Cross-Price Elasticity of Demand measures how a change in the price of good A affects the quantity demanded of good B. The result of CPED decides whether a good is Complements or Substitutes.

The formula used for CPED [Photo by WallStreet Mojo]

• Substitutes Goods = Result of Positive (+) Percentage
• Complements Goods = Result of Negative (-) Percentage

Income Elasticity of Demand

• Income Elasticity of Demand measures how changes in income affect the quantity demanded of a good. The result of IED decides whether a good is Normal or Inferior.

The formula used for IED [Photo by WallStreet Mojo]

• Normal Goods = Result of Positive (+) Percentage
• Inferior Goods = Result of Negative (-) Percentage

Price Elasticity of Supply

• Price Elasticity of Demand (P.E.D) represents a rate of the sensitivity of suppliers to change in prices.

The Formula used for PES [Photo by WallStreet Mojo]

• A Negative Sign does not matter on PES