VII. Income elasticity
       is the % change in quantity demanded divided by the % change in income. 

          A. Income elasticity is positive for normal (superior) goods such as steak
             and vacations - more is purchased as income increases. 
        B. Income elasticity is negative for inferior goods such as bread and
             hamburger-less is purchased as income increases.
        C. In times of recession, income elasticity determines loss in revenue by
            producing firms. 
    D. Selected income elasticity's Wiki
       E. Income Elasticity of Demand
   F. Visit  Income Elasticity of Demand from tutor2u for more information.

VIII. Cross elasticity of demand 
       is the % change in quantity demanded divided by the % change in the price of a substitute or complement. 
            A. Cross elasticity is positive for goods that are substitutes (price of hot dogs up, quantity of hamburger sold up).
            B. It is negative for goods that are complements (price of hot dogs up, quantity of hot dog rolls sold down).
            C Near zero for independent goods (peanuts and grapefruit)
            C. Cross Price Elasticity of Demand from tutor2u
            D. Income and Cross Elasticity Video from ACDC Econ
            E. Virtual Economy from Buz\ed has an elasticity calculator.       Please                                                                 

IX. Price elasticity of supply  is the % change in quantity supplied divided by the % change in price. 

                                         
       A. It is a function of how factor costs change as more is produced and the passage of time. 
       B. If costs (factor prices such as wages and rent) change little as more is offered for sale at higher selling prices
            then profit potential is high and supply will be elastic. 
       C. Supply elasticity also increases with time as companies have more time to adjust to higher costs. 
           1. Unusually high demand for tomato's or the Chrysler PT Cruiser take time to produce and supply is inelastic.
           2. Gateway may be able to increase the number of a new popular model computer quickly and supply is more elastic.
       D. Gold production is costly and takes time so price is volatile because of frequent demand changes.
       E. Selected supply elasticity's
       F. Visit Price elasticity of supply from tutor2u for more information

PEDs, in combination with price elasticity of supply (PES), can be used to assess where the incidence (or "burden") of a per-unit tax is falling or to predict where it will fall if the tax is imposed. For example, when demand is perfectly inelastic, by definition consumers have no alternative to purchasing the good or service if the price increases, so the quantity demanded would remain constant. Hence, suppliers can increase the price by the full amount of the tax, and the consumer would end up paying the entirety. In the opposite case, when demand is perfectly elastic, by definition consumers have an infinite ability to switch to alternatives if the price increases, so they would stop buying the good or service in question completely—quantity demanded would fall to zero. As a result, firms cannot pass on any part of the tax by raising prices, so they would be forced to pay all of it themselves.^[38]

In practice, demand is likely to be only relatively elastic or relatively inelastic, that is, somewhere between the extreme cases of perfect elasticity or inelasticity.  ACDC Videos  Tax Incidence  
Taxes on Producers     Excise Tax Practice
For more see the main article: tax incidence

More generally, then, the higher the elasticity of demand compared to PES, the heavier the burden on producers; conversely, the more inelastic the demand compared to PES, the heavier the burden on consumers. The general principle is that the party (i.e., consumers or producers) that has fewer opportunities to avoid the tax.

B. Price is up much more than
     even health care!
     1. Cost of living tripled
     2. Health care up six times
     3. College tuition/fees almost
         ten times

XIII. Practice Quizzes With Answers

Elasticity Quiz with  Answers from Dr. R. L. Reynolds of Boise St. University.

Click Level 1 Elasticity Questions, 
print out the multiple choice practice questions, answer them on the print out, 
and click Answers for my answers. Buy the Book Economics, the source, from amazon.com

amosweb practice test by specific topic.  Choose Elasticity, answers from amosweb.

More Practice Problems with Answers from Middle Tennessee State

Our  Free Internet Libraries  improve grades and careers.

XIV Class Discussion Question 

This chapter and chapters to follow will provide the knowledge needed 
to determine why college graduate salaries are dropping
and unemployment is staying high though below the national average. 
Discuss using this and other facts.

Determine interesting questions, relevant data, and alternative answers to your questions. What additional data would be useful to your analysis?

Data source is an extensive study.

Chapter 19 Homework Questions              Next Chapter         

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