Level 1 - Economics - Elasticity

Elasticity

Price Elasticity of Demand

% change in quantity demand / % change in price
If: > 1 à elastic;  if = ∞ à perfectly elastic
     < 1 à inelastic;  if = 0 à perfectly inelastic
     = 1 à unit elastic

Cross Elasticity of Demand

% change in quantity demand of good A / % change in price of good B
If +ve à they are substitutes;  if –ve à they are complement
 

Income Elasticity of Demand

% change in quantity demand / % change in income
If = 0 to 1 à necessities;  if > 1 à luxuries

Price Elasticity of Supply

% change in quantity supply / % change in price

Maximizing the Revenue

當price level令elasticity of demand = 1，Total revenue會最大，所以:
If elasticity > 1 à 減價;  if elasticity < 1 à 加價