Topic 

Elasticity

Instructions 

Read pages 134-149 of Economics.

Consider the following as you read: 

• What is the usefulness of the total revenue test for price elasticity of demand?
• What are the factors that affect the price elasticity of demand and price elasticity of supply? What are some applications of each?

Answer Preview 

There are several factors that impact the elasticity of demand and they include income level, nature of the product, availability of substitutes, number of uses, time period, share in total expenditure, and the postponement of consumption. On the other hand, price elasticity of supply is affected by factors such as innovation of technology, availability of resources, and the number of producers. If the price elasticity is higher, sellers and producers will remain more sensitive to price changes. In essence, price elasticity of supply evaluates the responsiveness of supply to a transition in price.

Word Count: 300