1. 1 Other demand elasticities There are other elasticities besides the own price elasticity of demand. Let’s see a few here.

2. 2 demand shifters We saw that things like taste and preference, price of other goods, income and the number of buyers shift the demand curve if they change. How much do they shift the demand curve? We use other elasticity concepts as an indication of how much the curve will shift given a change in one of these factors.

3. 3 cross price elasticity of demand Edxy = % change in Qdx / % change in Py. The bigger the value the more the demand shifts. If the value is negative we have complements and if positive we have substitutes. If the absolute value is between 0 and 1 the cross elasticity is inelastic, if = 1 unit elastic and if greater than 1 elastic.

4. 4 income elasticity of demand Edxm = % change in Qdx / % change in M. The bigger the value the more the demand shifts. If the value is negative we have an inferior good and if positive we have a normal good. If the absolute value is between 0 and 1 the income elasticity is inelastic, if = 1, unit elastic, and if greater than 1, elastic.

5. 5 applied problem Say the cross price elasticity for Coke with respect to the price of Pepsi is 1.7. This means for every 1% Pepsi raises price the demand for Coke will go up 1.7%. Say Coke exec’s hear Pepsi is going to raise price by 2.5%. How much will Coke exec’s expect demand to rise? 1.7 = 1.7= x/2.5 or x = 1.7(2.5) or 4.25%

6. 6 Elasticity of supply The elasticity of supply is used to indicate the percentage change in the quantity supplied given a percentage change in price. The elasticity of supply is calculated in a manner similar to the other elasticities we have seen and has a similar interpretation in terms of the range of values the elasticity might take, i.e. elastic, inelastic and unit elastic.