Econ-101-Elasticity continues

Announcements: It's flu season, apparently. If you're sick, don't show up. It's that simple!

Review:
Elasticity of Demand: The sensitivity of quantity demanded to changes in price

Relative change in Q
Relative change in P

or

/\Q / Average Q
/\P / Average P

or

(Average P / Average Q) X (1 / Slope)

It's an oversimplification, but flat demand is more elastic, and steep demand is less elastic. This is due to the increase or decrease in inverted slope
Also, more right-shifted demand curves are less elastic than left-shifted demand curves. This is due to the increase or decrease in average quantity demanded at any price

HOKAY!

Why do we get different sensitivity rates to price changes (elasticity rates) for different products?
Why are certain firms able to get away with 'jacking up the price' of certain products?

THE ANSWER:
Different degrees of availability of substitutes products (outputs on the demand side) effect elasticity. The more options, and higher the quality of available substitutes, the easier it will be for consumers to simply buy a substitute product if the price of a good increases. This means that it is easier for consumers to respond to price changes by lowering or heightening demand for products with many viable substitutes...

MORE SUBSTITUTES = HIGHER ELASTICITY

The more specific a product is, the higher elasticity will be.

Coke is much more elastic as a good than 'pop'
Pop is much more elastic as a good than 'fluids'

TIME PERIOD EFFECTS THINGS
Over time, competition increases, the availability of substitutes increases, and elasticity increases.

PERCEPTION ALSO EFFECTS THINGS
products viewed as 'luxury' items will simply not be purchased if their price is raised. How consumers perceive products effects elasticity.

HOKAY Time for comparisons

NAME SHAPE ELASTICITY REASON
perfectly inelastic vertical line 0 demand never changes with price
inelastic steep line less than 1 /\ Q < /\ P
unit elastic rectangular hyperbola 1 /\ Q = /\ P
elastic flat line more than 1 /\ Q > /\ P
perfectly elastic horizontal line infinite price never changes with demand

THE PRICE ELASTICITY OF SUPPLY!
-the responsiveness of supply to changes in price
-the formulas are the same...

HOWEVER, unit elasticity is a straight line through the origin, not a rectangular hyperbola. Why- ask Jude Drutz!

Here, elasticity is determined by the availability of substitute inputs!
The more viable substitute factors of production you have to work with as a producer, the more elastic the supply if your product will be.

EG: you farm wheat and oats. It is fairly easy to divert production towards wheat if the price of wheat increases, because wheat is a substitute input for many other grain products, it is also easy to divert production away from wheat, because it uses the same machinery and land as other substitute crops. SO WHEAT has a high price elasticity of supply.

Durin fruit is difficult and unique to farm. It requires a very specific method to cultivate and harvest, which is not used to cultivate other fruits. It is very difficult to change the production quantity of Durin in response to price changes, so Durin has low elasticity.

FIN