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Cross-price elasticity of demand = % change in Qd of good A % change in price of good B

Substitute goods have positive cross-price elasticities of demand: if good A is a substitute for good B, like coffee and tea, then a higher price for B will mean a greater quantity consumed of A. Complement goods have negative cross-price elasticities: if good A is a complement for good B, like coffee and sugar, then a higher price for B will mean a lower quantity consumed of A.

Elasticity in labor and financial capital markets

The concept of elasticity applies to any market, not just markets for goods and services. In the labor market, for example, the wage elasticity of labor supply    —that is, the percentage change in hours worked divided by the percentage change in wages—will determine the shape of the labor supply curve. Specifically:

Elasticity of labor supply = % change in quantity of labor supplied % change in wage

The wage elasticity of labor supply for teenage workers is generally thought to be fairly elastic: that is, a certain percentage change in wages will lead to a larger percentage change in the quantity of hours worked. Conversely, the wage elasticity of labor supply for adult workers in their thirties and forties is thought to be fairly inelastic. When wages move up or down by a certain percentage amount, the quantity of hours that adults in their prime earning years are willing to supply changes but by a lesser percentage amount.

In markets for financial capital, the elasticity of savings    —that is, the percentage change in the quantity of savings divided by the percentage change in interest rates—will describe the shape of the supply curve for financial capital. That is:

Elasticity of savings = % change in quantity of financial savings % change in interest rate

Sometimes laws are proposed that seek to increase the quantity of savings by offering tax breaks so that the return on savings is higher. Such a policy will increase the quantity if the supply curve for financial capital is elastic, because then a given percentage increase in the return to savings will cause a higher percentage increase in the quantity of savings. However, if the supply curve for financial capital is highly inelastic, then a percentage increase in the return to savings will cause only a small increase in the quantity of savings. The evidence on the supply curve of financial capital is controversial but, at least in the short run, the elasticity of savings with respect to the interest rate appears fairly inelastic.

Expanding the concept of elasticity

The elasticity concept does not even need to relate to a typical supply or demand curve at all. For example, imagine that you are studying whether the Internal Revenue Service should spend more money on auditing tax returns. The question can be framed in terms of the elasticity of tax collections with respect to spending on tax enforcement; that is, what is the percentage change in tax collections derived from a percentage change in spending on tax enforcement?

Questions & Answers

what's economics
Peace Reply
how do I answer aquestion in econmics
Blessing Reply
A thorough thought through the questions alongside examining ressearch materials.
I what I think is by observing the question and analysing the question and use the economic terms to answer the particular question and what it required for.
why the demand slopping down word? plz I need an answer
as price increases fewer people want to buy it
When the quantity of goods is more, price falls and demand increases. Remember, demand is sensitive to price change and so the curve slopes downward when consumers demand more goods because of price falls. A.E.
what is modelling economics growth?
Dagim Reply
I would like to know
Meaning of a monopolist
Lindah Reply
single line product
I really mean by single line of products in this kind of situation the market as a feature of both perfect and monopoly , as outlined below: it is market with many buyer's and sellers, but: with differentiated commodities(not homogenous). I bet I answered your question. thanks.
it as a feature of both monopoly and perfect market competition.
the differentiation is not so much with technicalities of the commodities but with branding, packing, servicing etc.
what is monopoly
Sewu Reply
Monopoly is a market structure where there is single seller or producer of a commodity which has no close substitute.
explain law of increasing opportunity cost
Glennis Reply
how many labour market are there in Nigeria
Ayinde Reply
what is monopoly?
Prince Reply
it is a type of imperfect market where there are single seller of a product
what is society's basic economic problems?
ABDI Reply
another definition of economic s
Louisa Reply
what is economic s
is the study of the individual interest
or the study of the scarcity
Is an inquiry to the nature and causes of wealth to the nation
economic as social science which covers the actions of individuals and groups of individuals in the processes of producing, exchanging and consuming of goods and services.
compar and contrast the four market structure
The study or principles of the way money, business and industry organized.
what is optimal biomass
Sheikh Reply
biological approach in economics
What is the difference between pure monopoly and natural monopoly
Joseph Reply
what is price elasticity demand
Explain the law of demand
hello my name is Godwin David am an economics student
what's the opportunity cost for free goods?
A free good is a good with zero opportunity cost . This means it can be consumed in as much quantity as needed without reducing its availability to others.
yes tucker, a free good is available without limit therefore, it is not scarce at all. ...Aviation economist.
I'm Daniel
I'm new here
U welcome
what is the demand and supply of QD is equal to 4040 thousand
Prince Reply
uses and limitations of elasticity of demand concept
Elasticity of demand refers to the degree of responsiveness of quantities
grace Reply
Hi everyone

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Source:  OpenStax, Principles of economics. OpenStax CNX. Sep 19, 2014 Download for free at http://legacy.cnx.org/content/col11613/1.11
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