Chapter 5: Elasticity and its Application

Chapter 5 discusses elasticity, which is the measure of the responsiveness of quantity demanded or quantity supplied to one of its determinants. When the curve is elastic that means there was a huge response while inelastic means there was only a small response. The price elasticity of demand is dependent on availability of close substitutes, whether or not if its a necessity, whether or not its a narrow market or broadly defined market, and over the course of time. The price elasticity of demand measures how much the quantity of a good changes in response to the change in its price. Demand curves are more or less inelastic. If the curve is steeper or upright, the more inelastic it is. Total revenue is the amount paid by buyers and received by sellers of a good, computed as the price of the good times the quantity sold. Total revenue is affected by how elastic/inelastic a curve is. A decrease in revenue is seen if the price increases in an elastic curve. If the curve is inelastic, a increase in price is an increase in revenue. There is also income elasticity of demand that measures how the quantity demanded changes as consumer income changes. Price elasticity of supply is a measure of how much of the quantity supplied of a good responds to a change in the price of that good. Supply of a good is elastic if the quantity supplied responds substantially to changes in price. It is inelastic if the quantity supplied responds slightly to changes in price. Overall, this chapter would be given a 2 considering it introduces changes in price based off supply and demand.