Economics from a Global Perspective (Alan Glanville)
S. 84-108 | koonnut Minna 0404

Elasticity: yleistä
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- The measure of responsiveness of one variable to another
- Example: if price changes, how much does quantity demanded change?

PED = percentace change in D / percentage change in P
(Note: elasticity has no units)

Jos PED > 1 -> tuote on price elastic (luxuries)
Jos PED < 1 -> tuota on price inelastic (necessities)


Price elasticity & total revenue
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- Jos tuote on price elastic -> hinnan muutos aiheuttaa suuremman muutoksen demandissa
  Prices rise -> total revenue falls
- Jos tuote on price inelastic -> hinnan muutos aiheuttaa pienemmän muutoksen demandissa
  Prices fall -> quantity increases by more -> total revenue rises


Income elasticity of demand
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- IED = % change in quantity demanded / % change in income
- Normal goods -> positive income elasticity
- Inferior goods -> negative income elasticity


Cross price elasticity of demand
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- Responsiveness of the Q demanded of a good A may be also measured
  against the price of good B
- Cross PED = % change in Q of A demanded / % change in P of B

- Goods with negative CPED = complementary goods (esim. lyijytäytekynät ja lyijy)
- Goods with positive CPED = substitute goods (esim. junalla/bussilla matkustaminen)


Elasticity of supply
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- Measure of responsiveness of the quantity supplied to a change in price
- PES = % change in Q supplied / % change in price


Elasticity of demand
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Seikat jotka vaikuttaa elasticity of demandiin:

1. Number & closeness of substitute goods
   - The broader a product is defined, the fewer substitutes there will be
2. Passage of time
   - The longer the passage of time, the more elastic the quantity response will be
3. Addiction
4. Proportion of income spent on the good
   - If a small proportion of income is used on the good -> change in price produces only
     a  small effect (-> inelastic demand)
5. Branding and advertising
   - Branding -> product becomes more inelastic in demand


Determination of elasticity of supply
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Seikat jotka vaikuttaa:
1. The closeness of producer substitutes
   - If a producer can produce several products, the Q supplied of any one product will be quite elastic
2. The passage of time
   - Price change -> price elasticity will be greater the longer the time that elapses between the price
     change and measuring the quantity response
3. Unused capacity and costs of inputs


Elasticities and business decisions
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- Income elasticity of a product is of great significance to businesses
- Degree of elasticity is also important
- Problem of 3rd world countries that produce primary products:
  World income grows -> primary goods enjoy only a modest increase in demand
- Products with high income elasticity of demand will be subject to much greater swings in demand, both up and down