Class #29 "Elasticity and Demand" (11/09/2011)

Demand, and quantity demanded can clearly change through change in prices, substitutes, income, ect. HOW MUCH QD changes is what elasticity is. 

Elasticity = (%Change in QD) / (%Change in area of interest, ex. price)

Essentially elasticity is how sensitive consumer(s) are to change in prices, or other factors. A high elasticity ( i.e. over 1) means you will react more drastically to changes in prices. 

What impacts elasticity?

1. Time: Long term elasticity will not be the same as short term elasticity. 

                  (EX. gas goes to  $10, at first you will have to keep driving, but eventually start carpooling, and maybe buy a electric car, move closer to work, ect.)

2. Budgets: If you have more extra income, you will tend to be less sensitive to price changes.

3. Substitutes: The amount of available substitutes will affect elasticity. 

Rizzo

-Daniel Gaona