Class Summary 11/9

ELASTICITY 

Today in class there were a lot of graphs and tables on the board that all helped the class to understand the concept of elasticity. Rizzo basically said that elasticity is the:

% of change in Quality Demand

% of change in Whatever else you're interested in (e.g. Own Price)

There are times when people are very sensitive to price change and other times when we are not. Big numbers from the formula above mean that we are very sensitive, small numbers means we are not very sensitive. Our big decisions happen over time. Even if we are ready to change our behavior producers need time to adjust too. 

Another major idea we talked about was substitution for goods, because our ability to substitute goods also impacts our elasticity. In regard to substitution, when you define your good more narrowly, the more substitutes you will have because there will be more elasticity.