Elasticity is the inverse of slope x original price / original quantity

Elasticity starts to fall if you move from left to right

Price goes down from left to right
Quantity goes up from left to right
The steeper the demand curve, the lower the elasticity
But you must be comparing a common point
Because if they are in different points, then they have different prices and different
quantities
If they are at the common point, if you increase the price from the same point then you can
compare elasticity
Total revenue = price x Quantity - from suppliers side
Total expenditure is the same except for the buyers side
This is only for linear demand curves
If you have a demand curve where the revenue is always the same, then elasticity will be 1
(demand curve that starts steep but slopes more horizontal).
If demand curve is horizontal, any change in price will cause demand to drop to 0
In this case the elasticity is infinity
If demand curve is vertical
Then elasticity is 0, it is not responsible at all, no matter what happens to the price, the quantity
demanded remains exactly the same

Factors that influence price elasticity

Closeness of substitutes
The less the substitutes a product has, the elasticity will be lower, you are less sensitive to price
because there isnt anything you can swap out of
Low # of substitutes = low price elasticity
E.g. gasoline
Vice versa (cereal)
Proportion of income
The larger the proportion the item takes in your budget, the higher the elasticity
As price is larger in the proportion of income goes up, elasticity goes up, you will be more responsive
Time elapsed since price change
The more time consumers have to adjust to the price change, the more elastic is the demand for
that good.
If people have time to respond and adapt to substitutes, then elasticity will also go up.
The smaller the time you frame, the lesser your ability to respond, and the more inelastic

The demand curve becomes flatter, from the same point the more time you have
More elasticity of demand

Cross price elasticity

(Percentage change in quantity demanded) / (percentage change in price of a substitute or
compliment)
This sees how the price of one can affect the quantity of another
Plus or minus sign does not matter for price elasticity but it DOES matter for cross elasticity
If it is negative, then in general it implies that they are compliments
If they are substitutes
Then the answer will generally be positive

E.g. If the price of cars increase due to a shift in demand or supply curve, the demand of petrol could
shift to the left or right
With luxuries you buy proportionally more
But with necessities you are buying more but not proportionally more
We need to ask what caused the price increase at the first place
To work out income elasticity it is
Percentage change in quantity / percentage change in income
ELASTICITY OF SUPPLY
Percentage change in quantity supplied / percentage change in price
Answer will always be positive
Elasticity is affected by resources used and time
Resources: if resources are rare, you are unable to quickly change your supply = low elasticity
It is easier to substitute among the resources used to produce or good, the greater elasticity of
supply
If it is hard to find new resources, then it is not very elastic. The more you need your resources, the
lower elasticity of supply
Time = if they have more time, they have more time to adjust and be more elastic, more flexible as
time increases, the more elastic. If time is short, then the supply is not elastic.