5.4 Elasticity in Areas Other Than Price

LEARNING OBJECTIVES

By the end of this section, you will be able to:

• Calculate the income elasticity of demand and the cross-price elasticity of demand

• Calculate the elasticity in labor and financial capital markets through an understanding of the elasticity of

labor supply and the elasticity of savings

• Apply concepts of price elasticity to real-world situations

The basic idea of elasticity—how a percentage change in one variable causes a percentage change in another

variable—does not just apply to the responsiveness of quantity supplied and quantity demanded to changes in

the price of a product. Recall that quantity demanded (Qd) depends on income, tastes and preferences, the

prices of related goods, and so on, as well as price. Similarly, quantity supplied (Qs) depends on factors such as

the cost of production, as well as price. We can measure elasticity for any determinant of quantity supplied and
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