Elasticity Practice- Supply and Demand

Summary

In this ACDC econ video, Jacob Clifford focuses on practicing elasticity concepts with students. He emphasizes the importance of subscribing and supporting his content, which funds his work. The video covers various types of elasticity, including demand, supply, cross-price, and income elasticity. Clifford provides seven practice questions to test understanding, explaining the total revenue test for demand and supply, and how to calculate elasticity coefficients. He clarifies that the total revenue test cannot be used for supply elasticity and distinguishes between substitutes and complements using cross-price elasticity. The video concludes with income elasticity, differentiating between normal and inferior goods based on the sign of the elasticity coefficient.

Takeaways

• 😀 The video is aimed at economics students, focusing on the concept of elasticity.
• 📚 The presenter, Jacob Clifford, encourages viewers to learn about elasticity before practicing with the video.
• 💼 Jacob discusses his full-time job as a content creator for economics education, emphasizing the importance of subscriptions and support for his work.
• 📈 The video covers four types of elasticity: demand, supply, cross-price, and income elasticity.
• 📉 The total revenue test is explained as a method to determine if demand is elastic or inelastic.
• 🔢 The elasticity of demand coefficient is introduced, with calculations shown to determine if demand is elastic, unitary, or inelastic.
• 📊 The presenter clarifies that the total revenue test cannot be used for supply elasticity, unlike for demand.
• 🍎 Cross-price elasticity is discussed, with examples to differentiate between substitute and complementary goods.
• 💰 Income elasticity is explained, highlighting the difference between normal and inferior goods based on the sign of the elasticity coefficient.
• 📝 The video concludes with an encouragement to practice and review the material, and to share the video with others for educational purposes.

Q & A

What is the main focus of Jacob Clifford's ACDC econ videos?

The main focus of Jacob Clifford's ACDC econ videos is to provide practice and educational content for economics students, particularly in the area of elasticity.

Why is it important for viewers to subscribe to Jacob Clifford's YouTube channel?

Viewers are encouraged to subscribe to Jacob Clifford's channel to support his work, which includes creating educational content and resources for economics students. Subscribing helps YouTube recognize the value of his content, ensuring the channel's continuation.

What is the 'ultimate review packet' mentioned by Jacob Clifford?

The 'ultimate review packet' is a resource that Jacob Clifford offers, which includes summary videos covering the entire course of micro and macroeconomics, designed to help students learn and review the material.

How does Jacob Clifford explain the concept of elasticity in economics?

Jacob Clifford explains elasticity by discussing four different types: elasticity of demand, elasticity of supply, cross-price elasticity of demand, and income elasticity of demand. He uses practice questions to help students understand and calculate these concepts.

What is the total revenue test for elasticity?

The total revenue test for elasticity involves observing the change in total revenue when the price of a product changes. If total revenue decreases as price increases, the demand is considered elastic; if total revenue increases, the demand is inelastic.

What is the elasticity of demand coefficient and how is it calculated?

The elasticity of demand coefficient is calculated as the percent change in quantity demanded divided by the percent change in price. It indicates whether the demand is elastic (greater than one), unitary elastic (equal to one), or inelastic (less than one).

Why can't the total revenue test be used for elasticity of supply?

The total revenue test cannot be used for elasticity of supply because total revenue always moves in the same direction as price. When price increases, total revenue increases, and when price decreases, total revenue decreases, making it impossible to differentiate elasticity based on total revenue alone.

How does Jacob Clifford differentiate between substitutes and complements using cross-price elasticity?

Jacob Clifford uses cross-price elasticity to differentiate between substitutes and complements by looking at the sign of the elasticity coefficient. A positive coefficient indicates substitutes (as one product's price increase leads to an increase in demand for the other), while a negative coefficient indicates complements.

What is income elasticity of demand and how does it relate to normal and inferior goods?

Income elasticity of demand measures how quantity demanded of a good changes in response to changes in income. A positive coefficient indicates a normal good (demand increases with income), while a negative coefficient indicates an inferior good (demand decreases as income increases).

What advice does Jacob Clifford give to students who struggle with elasticity concepts?

Jacob Clifford advises students who struggle with elasticity concepts to practice more, review his videos, and consider using his 'ultimate review packet' for additional practice questions and explanations.

Outlines

00:00

🎓 Introduction to Elasticity in Economics

Jacob Clifford welcomes viewers to ACDC econ, emphasizing the importance of understanding elasticity concepts in economics. He mentions that this video will focus on practicing elasticity and encourages viewers to learn the concept if they haven't already. Clifford also discusses the financial aspect of his YouTube channel, explaining that it supports his livelihood. He asks viewers to subscribe and hit the notification bell to support his channel and considers creating a separate video on the midpoint formula for elasticity if requested. The video then transitions into discussing elasticity types, including demand, supply, cross-price, and income elasticity, with a focus on the first seven practice questions related to these concepts.

05:01

📊 Elasticity Calculations and Revenue Tests

The paragraph delves into the practice questions about elasticity, starting with the total revenue test to determine if demand is elastic or inelastic. It explains how an increase in price leading to a decrease in total revenue indicates elastic demand. The explanation continues with the calculation of the elasticity of demand coefficient, highlighting the importance of using percentage changes rather than absolute changes. The paragraph also clarifies that the coefficient is always negative due to the law of demand but should be considered in absolute terms when determining elasticity. It concludes with a discussion on the difference between using the total revenue test for demand versus supply and introduces the concept of cross-price elasticity, explaining how it differs from the other types of elasticity discussed.

10:02

🍏 Analyzing Substitutes and Complements

This section focuses on cross-price elasticity, illustrating how an increase in the price of one product, such as apples, affects the demand for another product, like vanilla ice cream. It explains that a negative cross-price elasticity indicates the products are complements, while a positive value suggests they are substitutes. The paragraph provides a step-by-step calculation of the cross-price elasticity coefficient, emphasizing the significance of positive and negative values in determining the relationship between products. It also touches on the concept of income elasticity, discussing how changes in income affect the quantity demanded of a product and differentiating between normal and inferior goods based on the sign of the income elasticity coefficient.

Keywords

💡Elasticity

Elasticity in economics refers to the measure of how demand or supply of a product changes in response to changes in other factors like price, income, or the price of related goods. In the video, elasticity is the central theme, with various types of elasticity discussed to understand how economic agents react to changes in market conditions.

💡Total Revenue Test

The Total Revenue Test is a method used to determine the elasticity of demand. It involves observing whether total revenue increases or decreases when the price changes. In the video, the test is used to illustrate that if total revenue decreases when price increases, the demand is elastic.

💡Elastic Demand

Elastic demand occurs when the quantity demanded of a good responds significantly to a change in price. In the script, it is mentioned that if the total revenue decreases when the price rises, the demand is elastic, indicating that consumers are sensitive to price changes.

💡Inelastic Demand

Inelastic demand is when changes in price have little effect on the quantity demanded. The video explains that if total revenue increases when the price rises, the demand is inelastic, suggesting consumers are less sensitive to price changes.

💡Elasticity of Demand Coefficient

The Elasticity of Demand Coefficient is calculated as the percentage change in quantity demanded divided by the percentage change in price. The video emphasizes that if this coefficient is greater than one, the demand is elastic, equal to one it's unit elastic, and less than one it's inelastic.

💡Cross Price Elasticity of Demand

Cross Price Elasticity of Demand measures the responsiveness of the quantity demanded of one good to a change in the price of another good. The video uses this concept to differentiate between substitutes and complements, explaining that a positive coefficient indicates substitutes, while a negative one indicates complements.

💡Income Elasticity of Demand

Income Elasticity of Demand measures how the quantity demanded of a good responds to changes in income. The video explains that if the quantity demanded decreases when income increases, the good is considered inferior, as indicated by a negative coefficient.

💡Law of Demand

The Law of Demand states that there is an inverse relationship between price and quantity demanded, all else being equal. The video script uses this law to explain why the total revenue test and the elasticity of demand coefficient can indicate whether demand is elastic or inelastic.

💡Law of Supply

The Law of Supply suggests that there is a direct relationship between price and quantity supplied, all else being equal. The video uses this law to explain why an increase in price leads to an increase in the quantity supplied, indicating elastic supply.

💡Ultimate Review Packet

The Ultimate Review Packet is a resource mentioned in the video that provides summary videos covering the entire course of micro and macroeconomics. It is used as an example of how students can reinforce their understanding of economic concepts, including elasticity.

💡Substitutes

Substitutes are two goods such that an increase in the price of one leads to an increase in the demand for the other. The video explains this concept using cross price elasticity, where a positive coefficient indicates that two goods are substitutes.

💡Complements

Complements are two goods that are used together, such that a decrease in the demand for one is associated with a decrease in the demand for the other. The video script illustrates this with an example where an increase in the price of apples leads to a decrease in the demand for vanilla ice cream.

Highlights

Introduction to ACDC econ by Jacob Clifford, focusing on practice for economic concepts.

Emphasis on the importance of subscribing and supporting the channel for continued content creation.

Discussion on the necessity to understand elasticity before proceeding with the practice questions.

Explanation of the total revenue test to determine if demand is elastic or inelastic.

Use of the total revenue test to illustrate the concept of elastic demand with given numerical examples.

Clarification that the total revenue test does not analyze quantity but rather the change in total revenue when price changes.

Introduction to the elasticity of demand coefficient and its calculation method.

Explanation of how to calculate the percent change in quantity and price for the elasticity of demand coefficient.

Mistake clarification regarding the calculation of elasticity, emphasizing the need for percent change rather than simple change.

Discussion on the interpretation of the elasticity of demand coefficient, including the significance of values greater than one.

Transition from demand to supply elasticity, with a new set of numerical examples.

Calculation of the elasticity of supply using the same formula as demand, but applied to supply data.

Explanation of why the total revenue test cannot be used for supply elasticity.

Introduction to cross-price elasticity, distinguishing between substitutes and complements.

Calculation of cross-price elasticity of demand with an example involving apples and peaches.

Discussion on the interpretation of positive and negative values in cross-price elasticity, indicating substitutes or complements.

Introduction to income elasticity and its calculation, differentiating between normal and inferior goods.

Final thoughts on practice and the importance of understanding elasticity concepts for economic studies.

Transcripts

hey how you doing econ students this is

Jacob Clifford and welcome to ACDC econ

if you've seen these videos before you

know exactly what we're doing it is time

to practice if you have not learned

elasticity go learn elasticity then come

back and practice with this video but

before we get into it really quickly let

me get serious here this is my full-time

job making YouTube videos and selling

the ultimate review pack and making

teacher resources doing workshops for

her econ teachers this what pays the

healthcare and my mortgage and all that

stuff so please do me a couple favors

number one please subscribe hit that

notification Bell even if you're not you

know going to watch the videos every

single week subscribing tells YouTube

that I'm making good stuff and it helps

the channel continue so please do that

also go get the ultimate review packet

it's a great way to learn it's a great

way to say thank you for making these

videos uh but basically it gives you

summary videos that cover the entire

course micro and macroeconomics take a

look the descriptions below but either

way whatever you do thank you for being

here and watching this video you rock

now on a completely different note we're

talking about a elasticity but I'm not

going to cover the midpoint formula your

professor or teacher might have shown

you that it's basically a more accurate

way to find out if the band is elastic

or in elastic and we're not going to do

that in this video if you want a

separate midpoint formula video tell me

in the description below and I will make

that for you but this one we'll talk

about the general idea of elasticity for

most of you in class you probably

covered four different types of

elasticity elasticity of demand

elasticity of supply cross price

elasticity of demand and income

elasticity demand that's what we're

going to talk about in this video I'm

going to give you seven practice

questions your job answer these

questions see if you're getting it if

you can do these calculations and answer

these questions then you understand it

and if you don't that's okay try your

best and I'll go over the answer so

right now pause the video see if you're

getting it ready and good luck question

one it's asking you to use the total

revenue test to figure out if the

demands El elastic or any elastic given

these numbers now first thing I want you

to notice like the price went up from 20

to 25 and the quantity went down which

is exactly what happens because the law

of demand so price went up quantity went

down we're not asking and the question

is not asking you what's going to happen

to quantity when the price goes up it's

asking what happens to total revenue

right that does total revenue go up or

is total revenue go down so in this case

notice the price started at 20 20 time

10 is $200 and then the price went up to

25 and the quantity went down to 5 25 *

5 is $125 so the total revenue went down

when the price price went up and if the

total revenue goes down the price goes

up that means this demand curve is

relatively elastic now if you've seen my

other video I gave you a trick at the

end to help you remember the total

revenue test using your arms uh take a

look at that if uh you've never seen it

before you do have to like remember that

but the concept makes sense the idea

here is this if the price goes up in

this case you know uh from 20 to 25 and

the quantity decreased a whole lot more

so price went up yeah it did but the

quantity decrease a whole lot that means

the total revenue is going to get

smaller and so that's why this is

elastic demand but let's say the

quantity only fell down to nine right

went from 10 to 9 so I'm changing the

question here the total revenue in this

case would actually go up right so price

would go up and total revenue would go

up so that would be inelastic demand if

the numbers were different so notice no

matter what whether it's elastic or in

elastic price goes up the quantity goes

down the total revenue test is not

analyzing the quantity at all it's

talking about the total revenue test

right what happens to the total revenue

when the price goes up but in question

number two you have to actually do the

calculations of something called the

elasticity of demand coefficient now the

good news is the equation's easy to

remember it's the percent change in

quantity divided by the percent change

in price now notice the biggest mistake

students make right here is to go well

the price went up by five and the

quantity decreased by five so it's five

over five which is one I'm done no right

remember this is not the change in price

it's not the change in quantity it's the

percent change so you have to actually

calculate the percent change in the

quantity and the price that's going to

give you the right answer quantity is on

top so the change in quantity went from

10 to five that's a decrease of 50% and

the price in this case went up by $5 and

$5 is 1/4 or

25% of 20 so here it is it's 50 because

remember the quantity decreased uh

divided by 25% so 50% divided by 25% we

can actually do do some calculations and

find out that's --2 now first thing I

want you to point out and know is the

elastic of demand coefficient is always

negative it's always negative because of

law of demand right price is going to go

up and the quantity is going to go down

so it's negative number but we usually

ignore that when we're analyzing if it's

elastic or inelastic so just do the

absolute value and the absolute value

here tells you that it's a number that's

greater than one if this number is

greater than one then that means the

demand is elastic for apples which we

already knew because of the answer to

question one remember in question one we

said the demand is elastic using the

total revenue test and this tells us

it's also elastic because the elasticity

of demand coefficient is greater than

one so there you go both the total

revenue test and the elasticity demand

coefficient are telling us the same

thing remember if the elasticity of

demand is greater than one then it's

elastic demand if it's one it's unit

elastic and if it's less than one then

it's in elastic and that make sense

right the number means something but in

demand we're talking about the absolute

value of you know that number because

the elasticity demand coefficient will

always be negative because of the law of

demand okay in question three we're

switching from demand to supply now you

have new numbers it said the price went

up from 20 to 25 and the quantity

supplied increased from 10 up to 25 now

the good news is it's the same equation

exact same equation except this time

it's the percent change in the quantity

supplied divided by % change in price so

it's really just the same equation uh

but you're just changing are you looking

at demand or in this case you're looking

at Supply so the change in the quantity

well it went from 10 to 25 right and 15

so it's it went up by 15 and so 15 is

150% of 10 and so the change in quantity

is 150% and we already know the change

in price because we already did it

earlier it's a change in 25% so you do

some calculations you figure out that

it's positive six that means that

there's a positive correlation between

price in the quantity supplied which of

course you know that because that's the

law of supply right price goes up the

quantity supplied will always go up

right so this number always pop out a

positive number now since the number is

greater than one that means the supply

is elastic right greater than one is the

elastic so same idea as before if you

know there's a small change in quantity

because a big change in price that'd be

an elastic Supply if the answer is one

it's un elastic and if the number pops

out number greater than one that means

it's elastic Supply in question number

four I'm just trying to clarify a

concept you can't use the total revenue

test to figure out the elasticity of

supply and the reason why is because

take a look when the price goes from 20

up to 25 the quantity increases so the

total revenue the size of the Box is

always going to go up when the price

goes up total revenue automatically is

going to go up when the price goes down

total revenue is going to go down so the

price and the total revenue are directly

related they will always go up or down

together so the point here is this just

understand you can use the total revenue

test for demand you cannot use the total

revenue test for Supply in question

number five we're switching again we've

already covered demand and Supply now

we're talking about cross price

elasticity and it says Uh there's an

increase in the price of apples and that

decreases the quantity demanded of

vanilla ice cream a different product so

now we're analyzing the relationship

between the apples and the vanilla ice

cream and it says are these two things

substitutes or compliments the answer is

they're compliments the reason why is

they're negatively related in other

words the price went up for the apples

and people bought less of the ice cream

so a negative number pops out uh means

it's a compliment also it makes sense

because when the price goes up for

apples people like well apples are more

expensive the coin demanded is going to

decrease for apples but people are also

in this case says that people are not

going to go buy ice cream either so the

coin Dem maned falls for the ice cream

so that means they must be compliments

now if it said people bought more ice

cream then they'd be substituted to each

other so that's what we're talking about

here when it comes to cross price

elasticity we're analyzing are these two

things substitutes or complement to each

other and that all make more sense when

we do question six it says assume the

increase of price of apples increase the

quantity demanded of a different product

peaches from 20 tons to 30 tons so now

you have some numbers to work with you

have to actually calculate the cross

price elasticity demand coefficient the

good news it's the same equation right

percent change in quantity divided by

the percent change in price except the

difference here is it's the change in

quantity of one product as a result of

the change in price of a completely

different product now the last two times

we did this it was you know the change

in the price of your product how does it

affect the quantity demanded or the

quantity Supply now it's a change in

price of one product in this case the

change in Apple's price and then how's

that affect peaches so same equation

first do the calculation for the

quantity uh the quantity went from 20 to

30 that's an increase of 50% and the

price increased 25% and that top side a

positive two so it turns out those

numbers were the same as question number

two it's the exact same equation and

it's the same number right in this case

two except it's not negative it's

positive so you've actually seen these

numbers before so in other words if you

had a hard time calculating like I don't

know how to do the math but you just did

this back in question number two so

hopefully had a chance to check yourself

the concept is what I'm talking about

now that positive number means something

back in question two the elasticity

demand coefficient was -2 right but we

said ah just look at the absolute value

the negative sign doesn't really matter

because the law of demand don't worry

about it in this one the positive really

matters in this case these two goods are

substitutes for each other right if the

price went up for one that means people

bought more of the other one right so if

price goes up for apples people buy more

peaches that means they must be

substitutes for each other people stop

buying the apples they go buy more

peaches instead so if you see a positive

number that means substitutes one way to

look at is right here kind of think of a

number line uh the cross price

elasticity if it's positive it's uh

substitutes if it's negative it's

compliment if it's zero that means

they're not related right if there's no

change in quantity from a change in

price so if the you know the price of uh

MacBooks go up and there's no change in

the quantity of tires then MacBooks and

you know tires are unrelated there's no

relationship between them at all right

they're they're not substitut not complt

they're nothing so zero means no

relationship of the the higher the

number so a positive one or positive

five or a positive 100 you know positive

100 means a really strong substitutes

you know negative one means a compliment

but you know not very strong -2 stronger

negative - 100 means they're you know

super close compliments each other like

you know milk and cereal or hot dog and

hot dog buns okay so that's the idea of

cross price elasticity and in question

number seven we finish it off now we're

talking about income elasticity so we're

not talking about the price of one

product relative to we're not talking

about demand we're not talking about

Supply we're talking about income here

so income the good news it's the same

equation percent change in quantity

except now it's the percent change in

income not price so in this situation it

says the quantity went from 10 down to

eight so that's a decrease of 20% and it

told you that there was an increase in

income of 10% and so you found out that

means it's -2 now negative matters the

negative here matters super important

the reason why is negative number means

if the incomes go up and people buy less

of this which sounds weird but people

become rich and go we're not to buy

apples as much that means this apples

must be an inferior good so an inferior

good is a negative number again you got

a number line here income elasticity of

demand a positive number means a normal

good if incomes go up and people buy

more of it right or incomes go down

people buy less of it still it's going

to be a positive number positive number

is a normal good and a negative number

means me you know if incomes go up and

people buy less of it or if incomes go

down and people buy more of it that's

going to be an idea of inferior good so

also a zero means unrelated income so if

income goes up or down has no effect on

whatever product this is so how did you

do did you do well did you get seven out

of seven six out of seven five out of

seven I mean what did you do what was

your score now if you're not getting it

that's okay it's time to practice take a

look at my ultimate review packet it's

got more practice questions in there go

back and watch the elasticity video I

made that talks about this

let me know if this was helpful share

this video with other people share it

with your teacher if your teacher

doesn't know about these videos get it

out there so they can see it and share

with other people thank you so much for

watching until next time