We’ve just run through quite a few different elasticities. Keeping them all straight can be a challenge. So in Table 5-3 we provide a summary of all the elasticities we have discussed and their implications.
Price elasticity of demand = (dropping the minus sign) | |
0 | Perfectly inelastic: price has no effect on quantity demanded (vertical demand curve). |
Between 0 and 1 | Inelastic: a rise in price increases total revenue. |
Exactly 1 |
Unit- |
Greater than 1, less than ∞ | Elastic: a rise in price reduces total revenue. |
∞ | Perfectly elastic: any rise in price causes quantity demanded to fall to 0. Any fall in price leads to an infinite quantity demanded (horizontal demand curve). |
Cross- |
|
Negative | Complements: quantity demanded of one good falls when the price of another rises. |
Positive | Substitutes: quantity demanded of one good rises when the price of another rises. |
Income elasticity of demand = | |
Negative | Inferior good: quantity demanded falls when income rises. |
Positive, less than 1 |
Normal good, income- |
Greater than 1 |
Normal good, income- |
Price elasticity of supply = | |
0 | Perfectly inelastic: price has no effect on quantity supplied (vertical supply curve). |
Greater than 0, less than ∞ | ordinary upward- |
∞ | Perfectly elastic: any fall in price causes quantity supplied to fall to 0. Any rise in price elicits an infinite quantity supplied (horizontal supply curve). |