Other Elasticities - AP Microeconomics

Identify the type of elasticity: $E_{i} = 1.2$

Income elasticity indicating a luxury good. Greater than 1 indicates luxury good classification.
State the relationship between two goods when cross-price elasticity is positive.

The goods are substitutes. Higher price of one good increases demand for the other.
Calculate income elasticity if demand decreases 5% as income increases 10%.

-0.5. $\frac{-5\%}{10\%} = -0.5$
Identify the type of elasticity: $E_{xy} = -1.5$

Cross-price elasticity indicating complementary goods. Negative cross-price elasticity indicates complementary relationship.
What elasticity is used to determine the relationship between goods?

Cross-price elasticity of demand. Measures how one good's demand responds to another's price.
Calculate the price elasticity of supply if supply increases 20% with a 10% price increase.

2. $\frac{20\%}{10\%} = 2$
What does a zero cross-price elasticity indicate about two goods?

The goods are unrelated. Price changes of one good don't affect demand for the other.
Identify the elasticity when a good is a normal good.

Positive income elasticity of demand. Normal goods have demand that increases with income.
What are goods with a cross-price elasticity of zero called?

Independent goods. Zero cross-price elasticity indicates no relationship.
What would you expect for cross-price elasticity of complementary goods?

Negative value. Complements move in opposite directions with price changes.
Find the cross-price elasticity if demand for good A decreases 20% when price of good B increases 10%.

-2. $\frac{-20\%}{10\%} = -2$
What does perfectly elastic supply mean for a price change?

Infinite elasticity; any price change alters supply. Supply is infinitely responsive to price changes.
Calculate the price elasticity of supply if supply decreases 10% with a 20% price drop.

0.5. $\frac{-10\%}{-20\%} = 0.5$
What is the formula for cross-price elasticity of demand?

$E_{xy} = \frac{\text{Percentage change in quantity demanded of good } x}{\text{Percentage change in price of good } y}$ . Measures how demand for good x responds to price changes in good y.
Define perfectly inelastic supply.

Supply elasticity is zero. Quantity supplied doesn't respond to price changes.
What does a price elasticity of supply greater than one indicate?

Supply is elastic. Supply responds proportionally more than price changes.
What does an income elasticity of -0.5 indicate?

The good is inferior. Negative value means demand falls as income rises.
What elasticity measures responsiveness of demand to income changes?

Income elasticity of demand. Shows how demand changes with consumer income.
Identify the elasticity when a good is an inferior good.

Negative income elasticity of demand. Inferior goods have demand that decreases as income rises.
What is the significance of an income elasticity greater than one?

The good is a luxury good. Demand increases faster than income rises.
What does a cross-price elasticity of demand greater than zero signify?

Goods are substitutes. Positive cross-price elasticity indicates substitute relationship.
What indicates a good with strong substitute relationships in elasticity terms?

High positive cross-price elasticity. Large positive value indicates strong substitute relationship.
What does a price elasticity of supply less than one indicate?

Supply is inelastic. Supply responds proportionally less than price changes.
Which elasticity would indicate a necessity good?

Income elasticity between 0 and 1. Between 0 and 1 indicates normal good with proportional response.
What does a cross-price elasticity of demand less than zero signify?

Goods are complements. Negative cross-price elasticity indicates complementary goods.
What is the formula for income elasticity of demand?

$E_{i} = \frac{\text{Percentage change in quantity demanded}}{\text{Percentage change in income}}$ . Measures how quantity demanded responds to income changes.
What type of good has a positive income elasticity of demand?

Normal good. Positive income elasticity defines normal goods.
What does a cross-price elasticity of -0.3 imply?

Weak complementary relationship. Small negative value indicates weak complementary relationship.
What is the relationship between goods with a cross-price elasticity of 0.8?

Substitute goods. Positive cross-price elasticity indicates substitute relationship.
If two goods are unrelated, what is their cross-price elasticity?

Zero. No relationship means no cross-price effect.
State the relationship between two goods when cross-price elasticity is negative.

The goods are complements. Higher price of one good decreases demand for the other.
What type of good is indicated by a cross-price elasticity of 1.5?

Substitute good. Positive cross-price elasticity indicates substitute relationship.
Describe the demand when cross-price elasticity of demand is zero.

Goods are independent. Zero cross-price elasticity means no relationship exists.
Calculate the cross-price elasticity if a 15% price increase leads to a 30% demand decrease.

-2. $\frac{-30\%}{15\%} = -2$
Calculate the cross-price elasticity if quantity demanded rises 5% with a 10% price increase of another good.

0.5. $\frac{5\%}{10\%} = 0.5$
What does a price elasticity of supply equal to zero indicate?

Perfectly inelastic supply. Zero elasticity means supply doesn't respond to price.
What is the formula for price elasticity of supply?

$E_s = \frac{\text{Percentage change in quantity supplied}}{\text{Percentage change in price}}$ . Measures supply responsiveness to price changes.
What does a unitary price elasticity of supply mean?

Supply elasticity is one. Supply responds proportionally equal to price changes.
Calculate the income elasticity if quantity demanded rises 10% with a 5% income increase.

2. $\frac{10\%}{5\%} = 2$
What is the significance of an income elasticity less than one but positive?

The good is a necessity. Demand increases but slower than income rises.

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