The 4 Types of Elasticity Explained | Economic Homework | Think Econ

Summary

This video introduces the concept of elasticity in economics, focusing on four types: own-price elasticity of demand, income elasticity of demand, cross-price elasticity of demand, and price elasticity of supply. It explains how these elasticities measure the responsiveness of quantity demanded or supplied to changes in price or income. The video also touches on the implications of positive or negative elasticities, such as identifying normal or inferior goods and substitutes or complements. Future videos will teach how to calculate these elasticities with real numbers.

Takeaways

• 📚 Elasticity is a fundamental concept in economics, particularly in macro and microeconomics.
• 🔢 There are four main types of elasticity: own-price elasticity of demand, income elasticity of demand, cross-price elasticity of demand, and price elasticity of supply.
• 📉 Own-price elasticity of demand (e_p) measures how quantity demanded changes with price changes and is always negative due to the law of demand.
• 💰 Income elasticity of demand (e_n) measures how quantity demanded changes with income changes, indicating whether a product is normal (positive) or inferior (negative).
• 🔄 Cross-price elasticity of demand (e_a,b) measures how quantity demanded of one good changes with the price of another related good, indicating if they are substitutes (positive) or complements (negative).
• 📈 Price elasticity of supply (e_s) measures how quantity supplied changes with price changes and is always positive according to the law of supply.
• 📋 The formula for elasticity is the percentage change in quantity divided by the percentage change in a determinant (price or income).
• 🎯 Elasticity coefficients help to understand the sensitivity of demand and supply to changes in their determinants.
• 👨‍🏫 Future videos will teach how to calculate these elasticities using real numbers, providing practical applications of the concept.
• 👍 The video encourages engagement by asking viewers to like, subscribe, and comment on the types of economic topics they'd like to see covered.

Q & A

What is elasticity in economics?

Elasticity is a measure of how quantity demanded and quantity supplied respond when one of their determinants, such as price or income, changes.

How many types of elasticity are there in economics?

There are four main types of elasticity: own-price elasticity of demand, income elasticity of demand, cross-price elasticity of demand, and price elasticity of supply.

What is own-price elasticity of demand and how is it denoted?

Own-price elasticity of demand measures how quantity demanded responds when the price of a good changes. It is typically denoted as e_p or e_sub_p.

Why is own-price elasticity of demand always negative?

It is always negative because the law of demand states that as price increases, quantity demanded decreases.

What is income elasticity of demand and how is it denoted?

Income elasticity of demand measures how quantity demanded responds when consumer income changes. It is denoted as e_n or e_sub_n.

How does a positive income elasticity of demand relate to a product?

A positive income elasticity indicates that the product is a normal good, meaning there is a positive correlation between income and quantity demanded.

What is cross-price elasticity of demand and how is it denoted?

Cross-price elasticity of demand measures how quantity demanded of one good responds to a price change of a related good. It is denoted as e_a,b or e_sub_a_comma_b.

What does the sign of cross-price elasticity of demand indicate about the relationship between two goods?

A positive sign indicates that the goods are substitutes, while a negative sign indicates that the goods are complements.

What is price elasticity of supply and how is it denoted?

Price elasticity of supply measures how much quantity supplied responds when the price of a good changes. It is denoted as e_s or e_sub_s.

Why is price elasticity of supply always positive?

It is always positive because the law of supply states that as price increases, quantity supplied increases, resulting in a positive coefficient for elasticity.

What is the general formula for calculating elasticity?

The general formula for elasticity is the percentage change in quantity, either demanded or supplied, divided by the percentage change in the determinant (price or income).

Will there be a future video on how to calculate elasticity?

Yes, the channel plans to make a video in the future that will show how to calculate elasticity with real numbers.