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and finance Allah shmoop What are elasticity Sze of supply

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and demand All right people when we're talking elasticity and

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economics were talking about how responsive one thing is to

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something else Like what if your brother snapped your arm

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with rubber band Yeah if you reacted wildly While you're

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very responsive to the change which means your elastic to

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being rubber band snapped if you remain stoic as a

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monk unmoving and un reactive you're in the elastic to

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being rubber band snapped with the elasticity of supply and

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demand were measuring the change in quantity as a response

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to a change in price Will the price elasticity of

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demand asks if price changes by n percent How does

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the quantity demanded change in the technical sense Price elasticity

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of demand is the percent change in quantity demanded divided

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by the percent change in price OK well even in

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the Monkey Kingdom we can measure the elasticity of demand

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For instance there was a time when a monkey could

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buy one banana for three back scratches a high price

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But now a monkey can get one banana for the

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price of one back scratch much much cheaper than before

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in fact well it's a third the price since the

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price of bananas changed well How did the quantity of

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bananas demanded in the Monkey Kingdom change well since bananas

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or cheaper now than they were before And since monkeys

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loves me some bananas will The demand for bananas has

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increased which means the demand for bananas moves down that

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the band curve to a higher quantity and a lower

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price like write down here But how many more bananas

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were demanded Exactly The world wants to know if the

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quantity of bananas demanded didn't increase that much Even with

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such a drastic price reduction well then the monkeys would

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have any elastic demand for bananas on the graph That's

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when the price change looks a lot bigger than the

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quantity change like when price elasticity of demand is less

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than one while the good is considered to have any

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elastic demand If instead the monkeys went bananas for bananas

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demanding many many many more bananas in response to the

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price drop well then it would be considered a relatively

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elastic demand when price elasticity of demand is greater than

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one Well then the goods considered to have elastic demand

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well if we think back to the elasticity of demand

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equation this makes sense like how much quantity changed is

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on top and how much price changed is on the

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bottom right there When quantity changes more than price our

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equation is top heavy which means it'LL be larger than

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one when quantity changes less than price Well it goes

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the other way right Okay when consumers will buy a

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lot more of something if the price drops or a

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lot less of something when the price rises that good

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has elastic demand It's stretchy when consumers keep buying a

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similar amount of the good Even if the price changes

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that good is in the elastic Let's take a look

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at elasticity of supply from the banana supply Your perspective

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The price elasticity of supply asks if price changes by

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X percent How does the quantity supplied change Well the

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price elasticity of supplies The percent change in quantity supply

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divided by the percent change in price the higher the

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price that banana suppliers can sell their bananas for well

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the more bananas they'LL want to sell right The lower

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the price the bananas with less They'LL want to sell

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if we take our same case where banana prices decreased

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by two thirds were only a third of the original

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price Well how does that affect quantity of banana supplied

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First of all why would the price of bananas decreased

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Well if producers are priced takers it means their price

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depends on consumer demand for the good In this case

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a drop in the demand for bananas by consumers would

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lead to a drop in prices So how does it

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drop in consumer demand Change the quantity supplied Well if

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the banana producer were elastic it means there's a large

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drop in banana supplied compared to the price drop Remember

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the more elastic something is the more drastic the response

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as with elasticity of demand a goods supplies considered elastic

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if the elasticity is bigger than one Well if banana

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producers were relatively in elastic to a drop in price

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than the quantity shrunk a small amount compared to the

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price drop in elastic supply means the price elasticity of

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the good is less than one Just as with any

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elastic command Okay so you might be wondering why some

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goods are more elastic imply Some are less elastic The

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price elasticity of demand can change when prices change when

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income changes and when substitute goods are available right The

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effect of crisis and income changes are similar since they

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both change your buying power in the market Right Substitute

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goods are well a bit different say the price of

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bananas dropped by two thirds because the substitute good became

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available on the market Yes plantains were looking atyou Plantains

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are no bananas but they're similar enough to be cutting

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into the banana market when substitute goods cut into another

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goods market well that goods demand usually drops causing a

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price drop So for consumers it's a change in how

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much cash is in your pocket and your alternative options

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on the market So what about four suppliers Well the

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price elasticity of supplies largely dependent on their production constraints

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In other words how much control do suppliers have in

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raising supply Because well sometimes they don't too much For

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instance if there was a hurricane that wiped out a

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slice of the usual supply of bananas banana supply will

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be lower There's nothing suppliers can really do about it

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when supply can't be increased in response to an increase

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in demand Well the supply elasticity is in elastic Another

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good example of an elastic supply is parking there just

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some days when there's high demand for parking Yes supply

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does not rise to meet that demand You can't just

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get out your asphalt paving truck and throw down and

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new spots or a thousand new spots to accommodate that

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line of Tesla's forming at the garage entrance there Both

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of these cases are examples of limited production capacity Other

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factors that can affect the price elasticity of supply Well

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firm stockpiling whether it's easy for firms to switch up

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their production process and how long it takes firms to

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produce new goods There wouldn't be a banana shortage if

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we could get bananas to grow like bamboo But way

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can't like Monkeys were sensitive to change price change That

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is whether you're a consumer or a producer You have

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immeasurable elasticity Deep down inside of you telling you how

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to respond to price changes All you have to do

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is put your banana down in Just listen for a

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second really

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