Econ Cheat Sheet

What is Elasticity? - Elasticity refers to the degree of responsiveness in supply or demand in relation to changes in price. If a curve is more elastic, then small changes in price will cause large changes in quantity consumed. If a curve is less elastic, then it will take large changes in price to effect a change in quantity consumed. Graphically, elasticity can be represented by the appearance of the supply or demand curve. A more elastic curve will be horizontal, and a less elastic curve will tilt more vertically. When talking about elasticity, the term "flat" refers to curves that are horizontal; a "flatter" elastic curve is closer to perfectly horizontal. At the extremes, a perfectly elastic curve will be horizontal, and a perfectly inelastic curve will be vertical.
Price elasticity of demand, also called the elasticity of demand, refers to the degree of responsiveness in demand quantity with respect to price. Consider a case in the figure below where demand is very elastic. There are many possible reasons for this phenomenon. Buyers might be able to easily substitute away from the good, so that when the price increases, they have little tolerance for the price change. Maybe the buyers don't want the good that much, so a small change in price has a large effect on their demand for the good. If demand is very inelastic, then large changes in price won't do very much to the quantity demanded it takes a Possible explanations for this situation could be that the good is an essential good that is not easily substituted for by other goods. That is, for a good with an inelastic curve, customers really want or really need the good, and they can't get want that good offers from anywhere else. This means that consumers will need to buy the same amount of the good from week to week, regardless of the price.
Like demand, supply also has varying degrees of responsiveness to price, which we refer to as price elasticity of supply, or the elasticity of supply. An inelastic