Chapter 5: Elasticity and its Application

This chapter deals with how to calculate the change in supply or demand. It talks about finding the average change in demand and the average change in price. Then, it talks about how to use the midpoint method in order to get the most accurate measurement of elasticity. It describes the difference between elastic and inelastic relationships and how they are predictable based on a graph. The chapter talks about how the availability of close substitutes, necessities vs. luxuries, definition of the market and the time horizon affect the elasticity of a good. Using the midpoint method, one gets the same answer regardless of the direction of change. The chapter also talks about how curves can be classified by their elasticity. For example, they are elastic when it is greater than one. It is inelastic when it is less than one. When it is equal to one, it is called the unit elasticity. It is also closely related to the slope of a curve. The chapter also deals with how the total revenue is calculated. It is calculated by multiplying the price of a good by the quantity sold.