In this second lesson on elasticity we’ll outline the factors that affect the relative price elasticity of demand for a good, summarized by the useful acronym “SPLAT”.
This lesson introduces the concept of cross price elasticity of demand, or the responsiveness of consumers of one good to a change in the price of a related good. We’ll outline the formula, walk through a couple of examples, interpret the results and discuss what factors determine the cross price elasticity of demand between two goods.
Our final lesson on elasticities will examine the responsiveness of consumers of a good to a change in their own incomes. The lesson introduces the formula for YED, gives an example of how to calculate YED for both a normal good and an inferior good and explains the different possible values of the YED coefficient.
Why does a knowledge of elasticity matter to businesses, the government and other stakeholders? This lesson explains the significance of price elasticity of demand, cross elasticity of demand and income elasticity of demand for producers and the government.