welcome back and now we're going to talk about uh other elasticities because the price elasticity of demand which is what we cover for 90 of this chapter isn't the only elasticity out there so first is the price elasticity of supply and it's the same idea as the price elasticity of demand except in this time we're talking about the change in the quantity supplied and and that can be uh malleable that can change also we think of we don't think of supply as being something that's changed by price in quite the same way we think of demand but it absolutely can be the case so this measures the sensitivity of supply to changes in prices so an example i like to give is think about um tickets to a sporting event okay well you have 40 000 seats in the stadium okay and your team is having a really terrible season so you can only sell tickets for ten dollars a pop how many tickets are gonna try to sell maybe 40 000 of them and now it's a really great season you can raise the prices 50 each how many tickets you want to sell probably 40 000 of them or it's uh the playoffs now you can something for a hundred dollars a pop probably still forty thousand the point is you have highly inelastic supply when you have a limit to the amount you can sell when you have sort of a fixed uh a fixed um product that doesn't really cost you that much more to sell more of them um so that is something we might have in the elastic supply something where you have elastic supply might be a product where you can easily switch between selling two things so if you're a uh a store that can easily stock up on one item or another you might react strongly to the price of one item going down like yo i can't sell you know i if uh this particular brand of potato chips man people only gonna buy them they're 25 cents each forget it i'm gonna get a different brand of potato chips in there if it's really easy for you to restock and change your mind so that is where you have more elastic supply so it's all about the ease and the ability to change production we describe supplies in elastic or elastic just like we did as demand and elastic supply is determined by factors such as the ability to substitute production things like the speed of technology or barriers to entry we'll talk a lot more about supply as we go into firm theory but i just want to introduce the price elasticity supply here cross price elasticity of demand okay so this is another way to measure how the quantity demanded is affected by something else it can be affected by the printing price of a different good so price cross price elasticity of demand measures the impact of the change in the price of one good has on demand for another good so when the price of good b changes how does that affect the quantity demanded for good a well we already have two terms that we use here so for example if this is a positive number so let's say the price of good b gets more expensive and as a result people buy more of good a those goods are substitutes right so if the price of pepsi goes up and people buy more coke as a result that would tell you coke and pepsi or substitutes so if you have a positive cross price elasticity of demand you have substitutes it's the same thing with going down if coke is on sale so people buy less pepsi negative divided by a negative you're going to end up with a positive number so positive cross price elasticity of demand you have complement substitutes the next one is complements if the price of hot dogs goes down you're going to sell more hot dog buns so when you have a negative cross price elasticity of demand which behaves a lot like the regular price elasticity of demand this is when you have complements so to restate that when substitutes have a positive cross price elasticity of demand complements have a negative cross price elasticity of demand and as far as the magnitude of this number well that tells you about the degree of substitutability or complementarity if it's positive or negative but really close to zero it means those things don't really have much of a relationship with one another right so we'd expect there to be this big relationship between the change in uh between hot dogs and hot dog buns but what about between hot dogs and onions when hot dogs are on sale are you going to sell more onions maybe because some people put chopped onions on their hot dogs but probably not a lot so i do think that is some degree of complementarity so it probably is a is a negative price cross price elasticity demand it's probably pretty close to zero because it's probably not a big change um same thing with substitutes gasoline and metrolink tickets when gas it's more expensive do more people take the train yeah probably not a lot of people so the i do think they have a negative cross price elasticity of demand but it's probably really probably close to zero okay the last one is the income elasticity of demand this talks about how the change in quantity demanded for some products is related to changes in income okay when you have normal goods you have a positive income elasticity of demand because as you get more money you buy more of the normal good so think about movie tickets as you get richer and you get a higher salary you're going to go to the movies more often so larger change in income uh income all right positive change income positive income uh change in quantity demanded so you have a positive income elasticity of demand for inferior goods like used clothing as you have more income you're going to buy less used clothing so you have a negative income elasticity of demand and again the magnitude matters here when would the income elasticity of demand be close to zero well for it to be close to zero remember for a fraction to be close to zero that means the numerator needs to be close to zero so when is this top number going to be zero or close to it well that's when no matter how rich you are you don't change the amount you buy of something so maybe toilet paper maybe toothpaste maybe milk so these are necessities when you have a product that's a necessity you have an incoming elasticity of demand that's close to zero okay when you have a large income elasticity demand now you're talking about more luxurious items where it takes a big change in income to actually see a change in the quantity demand okay that's all i've got for you there was a marathon we got through chapter five let me know if you have any questions