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Chapter 20: Demand and Supply Elasticity
Learning Objectives
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After you have studied this chapter, you should be able to
- define price elasticity of demand, elastic demand, unit elastic demand, inelastic demand, perfectly inelastic demand, perfectly elastic demand, cross price elasticity of demand, income elasticity of demand, price elasticity of supply, perfectly elastic supply, and perfectly inelastic supply;
- calculate price elasticity of demand in two ways, given the relevant information;
- predict what will happen to a firm’s total revenues if the firm changes price, given price elasticity of demand;
- classify an elasticity coefficient as indicating whether demand is elastic, unit elastic, or inelastic, in the relevant price range;
- recognize from a graph whether the demand for a good is perfectly elastic or perfectly inelastic in the specified price range;
- identify the determinants of price elasticity of demand;
- calculate the cross price elasticity of demand coefficient, and determine from the sign of that coefficient whether or not the goods in question are substitutes or complements;
- calculate income elasticity of demand from relevant information and distinguish price elasticity of demand from income elasticity of demand;
- calculate price elasticity of supply, identify the determinants of price elasticity of supply, and recognize a graph of a perfectly elastic supply curve and a perfectly inelastic supply curve.
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