Elasticity Summary - Video Tutorials & Practice Problems

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Elasticity Summary

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Alright guys, I hope you're excited for this video. This is where I took everything we've learned so far. And I put it all onto one page and we just got a ton of information, all crammed in here. So let's check it out. So here we go. I've got it nice and organized for you. We're gonna start with our price elasticity of demand and supply. So we got our titles there and then I've got your formulas right next to it, right? I've got the super shorthand, I think you should feel comfortable with reading that by now. We've got percentage change in quantity demanded divided by percentage change in price there. Right? So um that's gonna be your formula that you should use. And then I've got all these different ways you can end up with an answer, right? You're gonna be able to analyze your answers based on this column. You're gonna get an answer above one boom. You know, it's elastic. Can't forget it there. And here I made a note, absolute value. Right? So for both of these price elasticity of demand and price elasticity of supply, it's always gonna be positive numbers, right? Always positive numbers. We use the absolute value. Don't worry about negative and positive. And here on the right, I've got the steps that we've been using right that step by step. Process to subtract the ad um and remember these these steps work for all, all of our elasticity is that we've worked on, so so far, the only thing you had to note was what was our two variables. Right? For price elasticity of demand and supply. We had quantities and price. Right, quantity demanded or quantity supplied and price on the denominator. But what about when we were talking about income elasticity down here, we still had the same steps, right? Except we had quantity and income. Right? So that's why I'm kind of italicized. These is just because those are two variables. I left it as the one for elasticity of demand. Just cause it's it's the most common one. But you should be comfortable substituting that for income or across price, right? Whatever it is, just uh use your two variables from the problem. So there you have your price elasticity of demand and supply. So you can kind of see how related they are. And then down here we've got our income elasticity of demand and our cross price elasticity of demand. Right? The other two that we did and they've got some similarities to. So first, just like before I gave you your formulas, um percentage change in quantity demanded over percentage change in income or for cross price, percentage change in quantity demanded of good X. Right? The first good divided percentage change in price of the other good. And then in the next box, I've got how we're going to analyze these right? When when when you get your answer your elasticity, this is how you're going to analyze whether it's a normal good or substitute complement. Whatever we're working with. We've got it all there and I made a quick note here right for these two, The sign does matter. We gotta keep the positive or the negative, so we're gonna have to pay attention to that. And that's why I've got the step six here. This is where after we've solved our subtraction addition midpoint method stuff, we need to make sure that we check the signs of quantity and the signs of price or income. Right? So there we go. We kind of have everything about the midpoint method and all our different elasticity is in one place. And since we had some extra space on the page, I went ahead and gave you even a little more information here in the bottom, remember when we talked about the straight line demand curve and where there was a point where we maximize revenue boom, We got it right here to the left of that. Middle point is going to be elastic to the right of that. Middle point is any elastic at that point where unit elastic. And that's where we maximize revenue. And we've got a little information about total revenue over here. And um what happens with different price changes, right? If price goes up and total revenue goes up, then we've got any elastic demand, just like the other cases there. Right? So we've gotta got everything from the chapter on one page here, you guys should feel pretty comfortable to use this while you're studying and then you'll ace it once you get to the test. Cool, let's do a couple more practice problems before we wrap up elasticity.

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Problem

Problem

A linear, downward-sloping demand curve is

A

Inelastic

B

Unit Elastic

C

Elastic

D

Inelastic at some points, and elastic at others

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Problem

Problem

An increase in the supply of a good will increase the total revenue producers receive if:

A

The demand curve is inelastic

B

The demand curve is elastic

C

The supply curve is inelastic

D

The supply curve is elastic

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Problem

Problem

A life-saving machine without any close substitutes will tend to have: