costly or difficult to build a new factory, hire many new workers, or open new stores. However, over a few years,

all of these are possible.

In most markets for goods and services, prices bounce up and down more than quantities in the short run, but

quantities often move more than prices in the long run. The underlying reason for this pattern is that supply

and demand are often inelastic in the short run, so that shifts in either demand or supply can cause a relatively

greater change in prices. However, since supply and demand are more elastic in the long run, the long-run

movements in prices are more muted, while quantity adjusts more easily in the long run.
128 5 • Elasticity

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
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