** elasticity** - measures how much curves change w/ respect to other curve

- percent change in 1 variable per 1 percent change in other variable, measures sensitivity
- independent to units that price/quantity are measured
- notice that the derivatives are w/ respect to P, not Q
- more elastic >> more reactive to changes
- perfectly elastic >> the smallest change could drive demand to 0

- less elastic >> less reactive to changes
- perfectly inelastic >> consumers willing to pay any price for good (ie drug addiction)

** price elasticity of demand** - E = %ΔQ / %ΔP = PdQ / QdP = (P/Q) (dQ/dP)

- dQ/dP = partial derivative of Q function w/ respect to P
- for
**arc elasticity**, dQ/dP is a given average change - normally calculated as
**point elasticity**w/ derivatives

- for
- elasticity of demand - usually negative number
- price increases >> quantity desired decreases, price decreases >> quantity desired increases
- availability of substitutes - primary determinant of price
- linear demand curve >> elasticity not constant, more elastic up top, near 0 at bottom

**constant elasticity demand function**- takes away linear possibility (unrealistic)- expenditure = Q x P >> d(exp) / dP = Q + P x dQ/dP = Q(1+elasticity)

**income elasticity of demand**= I/Q x dQ/dI- % that quantity changes w/ % income change
- luxuries = income elastic
- basic necessities = income inelastic

**cross-price elasticity of demand**- same as elasticity of demand, but w/ different goods- negative for complements (ie tires/cars)
- positive for substitutes

**perfectly elastic**- slightest price change will make demand go to 0
- obviously very responsive to price changes

**perfectly inelastic**- demand stays stable for any change in price
- obviously not at all responsive to price changes