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Topic Menu | | Unit 1: The Concept | | Stretchability
Responsiveness
Quantity Changes
Some Definitions
Unit 1 Review
| | Unit 2: A Little More | | Two Categories
Why Study: Market Shocks
Why Study: Taxes
Why Study: Price Controls
Unit 2 Review
| | Unit 3: Measurement | | Two Types
The Coefficient
Doing The Numbers: Endpoint
An Endpoint Problem
Doing The Numbers: Midpoint
Midpoint: The Same
Unit 3 Review
| | Unit 4: A Continuum | | Elasticity Alternatives
Perfectly Elastic
Relative Elastic
Perfectly Inelastic
Relatively Inelastic
Unit Elastic
Unit 4 Review
| | Unit 5: Market Elasticity | | Four Measures
Elasticity Determinants
Unit 5 Review
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Elasticity Basics
Life is good! Waldo's TexMex Taco World has lowered the price of its popular Super Deluxe TexMex Gargantuan Taco (with sour cream and jalapeno peppers). I'm in heaven. With this new, lower price I will certainly increase my weekly purchases. The only question is: How many?At the older, higher price I consumed one Super Deluxe TexMex Gargantuan Taco (with sour cream and jalapeno peppers) every day, or seven Super Deluxe TexMex Gargantuan Taco (with sour cream and jalapeno peppers) each week. With the price decline I WILL consume more. But how many more? Two a day? Three a day? My answer depends as much as anything on how much the price has fallen. While I like Super Deluxe TexMex Gargantuan Tacos (with sour cream and jalapeno peppers), I'm not going crazy with additional purchases if the price has fallen by only a penny or two per taco. A bigger price decline is bound to entice me to increase my taco consumption more than a smaller price decline. The solution to my predicament can be best understood in the context of the topic of our current lesson -- elasticity.
Elasticity is the relative responsiveness of one variable to changes in another variable. Economists find this notion of elasticity quite useful in the study of markets. In this lesson, we will examine the basics of elasticity, including what it is, how it is measured, and how it is used in market analysis.- The first unit of this lesson, The Concept, introduces the elasticity concept and previews its role in market analysis.
- In the second unit, A Little More, examines the importance of elasticity for such topics as market shocks, taxes, and price controls.
- The third unit, Measurement, takes a close look at how elasticity is measured, focusing on the coefficient of elasticity.
- The fourth unit, A Continuum, examines the five categories of elasticity, ranging from elastic to inelastic, that form a continuum.
- The fifth unit and final unit, Market Elasticity, closes this lesson by introducing four key elasticity concepts for the market demand and supply.
Learning ObjectivesThe basics of elasticity can be better understood through these ten learning objectives. - The general notion of elasticity as a measure of responsiveness.
- How elasticity is used to measure relative changes in quantity resulting from changes in price.
- The difference between elastic and inelastic.
- Why elasticity is useful for the market analysis of taxes and price controls.
- The midpoint elasticity formula which is commonly used to derive the coefficient of elasticity.
- How the coefficient of elasticity is used to measure elasticity.
- The continuum of elasticity, ranging from elastic to inelastic.
- The five elasticity of alternatives -- perfectly elastic, relatively elastic, unit elastic, relatively inelastic, and perfectly inelastic.
- The two key market elasticities -- price elasticity of demand and price elasticity of supply.
- Two other useful demand elasticities -- income elasticity of demand and cross elasticity of supply.
    
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