Bobby!
Elasticity – let me see if I can try to explain it without rehashing what the text says
So basic premise, if the price of beef goes up by 10%, people will probably buy 10% less beef, give or take. That’s elasticity, percentage change in demand (or supply for supply elasticity) over percentage change in price. Any type of elasticity will always have % change in quantity on top, always, remember that, quantity on top then the bottom is just what is moving in relation to.
So the 10% / 10% is an elasticity of 1, or unit elastic.
Now, if the price of water out of our tap goes up 50%, our consumption of water will not go down by 50%, maybe our water consumption goes down by 15%, we start to conserve but we still need to shower and pee, etc. This would be a relatively inelastic, here 15%/50% (.15 / .50) = .30, this is less than 1, relatively inelastic. Water, electricity, essentials, are going to be inelastic.
Now, if the price of Coke goes up by 25%, our demand for coke will probably go down by 50-60%, because we’ll just shift to Pepsi. Let’s say 60%, = .60 / .25 = 2.4. That would be a (highly) elastic good.
Items are going to be elastic if there are substitutes, inelastic if there are not or its an essential.
Similarly we can have income elasticity which is then just % change in quantity / % change in our income, or cross elasticity, so in our coke example, when the price of coke goes up by 25% let’s say demand for pepsi goes up by 50%, that would be a cross elasticity of positive 2, because they are substitutes (+.50/+.25 = 2). If they are compliments you will have negative elasticity, compliments being computers and peripherals, vehicles and gas, playstations and playstation games, etc.
That help? I think I saw 1 MCQ on this pop up on the exam, not a heavy subject. But exams vary so who knows you could get 3.
Can I clarify further?
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