AP Microeconomics

Advanced Placement Microeconomics analyzing individual economic decision-making.

Scarcity and Opportunity CostThe Role of IncentivesMarginal Analysis and Decision Making
Supply and DemandElasticityConsumer and Producer Surplus
Making Daily Economic ChoicesUnderstanding Market InteractionsResponding to Incentives in the Real World
Mastering Graphs and DiagramsApplying Concepts to Real-World ScenariosTime Management During the Exam
Scarcity and Opportu...The Role of Incentiv...Marginal Analysis an...Supply and DemandElasticityConsumer and Produce...Making Daily Economi...Understanding Market...Responding to Incent...Mastering Graphs and...Applying Concepts to...Time Management Duri...
Advanced Topics

Elasticity

How Sensitive Are We to Price Changes?

Elasticity measures how much quantity demanded or supplied responds to changes in price or income.

  • Price Elasticity of Demand: How much quantity demanded changes when price changes.
  • Income Elasticity of Demand: How much demand changes when income changes.

Why Elasticity Matters

Elasticity helps businesses set prices and governments predict the impact of taxes or subsidies.

Real-World Examples

  • If the price of soda rises, people might buy a lot less (elastic demand).
  • If the price of salt rises, people barely change how much they buy (inelastic demand).

Formula

\( E_d = \frac{%\ \text{change in quantity demanded}}{%\ \text{change in price}} \)

Examples

  • Concert ticket prices double and sales plummet, showing elastic demand.

  • Gasoline prices rise, but most people still fill up, showing inelastic demand.

In a Nutshell

Elasticity tells us how much people react to changes in prices or income.

Key Terms

Elasticity
A measure of how much one economic variable responds to changes in another.
Inelastic
When quantity demanded or supplied changes little in response to price.
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Consumer and Producer Surplus