elasticity - measures how much curves change w/ respect to other curve 

• percent change in 1 variable per 1 percent change in other variable, measures sensitivity
• independent to units that price/quantity are measured
• notice that the derivatives are w/ respect to P, not Q
• more elastic >> more reactive to changes
  • perfectly elastic >> the smallest change could drive demand to 0
• less elastic >> less reactive to changes
  • perfectly inelastic >> consumers willing to pay any price for good (ie drug addiction)

price elasticity of demand - E = %ΔQ / %ΔP = PdQ / QdP = (P/Q) (dQ/dP) 

• dQ/dP = partial derivative of Q function w/ respect to P
  • for arc elasticity, dQ/dP is a given average change
  • normally calculated as point elasticity w/ derivatives
• elasticity of demand - usually negative number
  • price increases >> quantity desired decreases, price decreases >> quantity desired increases
  • availability of substitutes - primary determinant of price
  • linear demand curve >> elasticity not constant, more elastic up top, near 0 at bottom
• constant elasticity demand function - takes away linear possibility (unrealistic)
  • expenditure = Q x P >> d(exp) / dP = Q + P x dQ/dP = Q(1+elasticity)
• income elasticity of demand = I/Q x dQ/dI
  • % that quantity changes w/ % income change
  • luxuries = income elastic
  • basic necessities = income inelastic
• cross-price elasticity of demand - same as elasticity of demand, but w/ different goods
  • negative for complements (ie tires/cars)
  • positive for substitutes

• perfectly elastic
• slightest price change will make demand go to 0
• obviously very responsive to price changes

• perfectly inelastic
• demand stays stable for any change in price
• obviously not at all responsive to price changes