Concepts
- Cross-Price Elasticity of Demand
- Substitutes vs. Complements
- Income Elasticity of Demand
- Normal Goods vs. Inferior Goods
- Necessity vs. Luxury
- Price Elasticity of Supply
- Wage Elasticity of Labor
Overview
The Price Elasticity of Demand is not the only measure of elasticity tested on the AP Exam. As we learn in this lesson, there are 4 other measures of elasticity that will be tested as well. Please don’t feel overwhelmed by the prospect of memorizing 4 more formulas. We spent a lot of time in the previous lesson learning HOW elasticity works. We have an independent variable that is referred to as the trigger. It’s percentage change always goes in the denominator. We have a dependent variable that measures the response, and it’s percentage change always goes in the numerator. If you apply these concepts you won’t have to memorize the formulas, you’ll actually understand how the measurements work. The cross-price elasticity of demand allows us to determine if the two goods in question are substitutes or complements. If it’s positive they are substitutes, and if it’s negative they are complements. The income elasticity of demand allows for two different distinctions. If the calculation is positive we know it’s a normal good and if it’s negative we know it’s an inferior good. If it’s relatively inelastic we know we’re looking at a necessity and if it’s relatively elastic we know we’re looking at a luxury. With the price elasticity of supply and the wage elasticity of labor, we simply need to understand what they measure and how to calculate them.
Materials
Lecture
Price Elasticity of Supply Video
Other Elasticities Lecture Video
Quiz
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