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Elasticity Formula Sheet
 Elasticity of Demand (ED): We know by the Law of Demand that when P increases, the quantity demanded falls. We
want to know by how much quantity demanded falls. Is it a small decrease or a large drop? This is why we need ED.
ED
Q1  Q0
Q  Q1
%Q

 0
P1  P0
%P
P0  P1
o ED > 1 
o ED < 1 
o ED = 1 
%ΔQ > %ΔP
%ΔQ < %ΔP
%ΔQ = %ΔP
Demand is ELASTIC
Demand is INELASTIC
Demand is UNITARY ELASTIC
 Elasticity of Supply (ES): We know by the Law of Supply that when P increases, the quantity supplied increases. We
want to know by how much quantity supplied rises. Is it a small increase or a large increase? This is why we need ES.
Q1  Q0
Q  Q1
%Q
ES 
 0
P1  P0
%P
P0  P1
o ES > 1 
o ES < 1 
o ES = 1 
%ΔQ > %ΔP
%ΔQ < %ΔP
%ΔQ = %ΔP
Supply is ELASTIC
Supply is INELASTIC
Supply is UNITARY ELASTIC
 Income Elasticity (EI): The best way to think about this is to ask yourself the following questions: What happens to
my demand for good “x” when my income rises? What happens to my demand for good “x” when my income falls?
Q1  Q0
Q0  Q1
% Q
EI 

I1  I 0
% I
I 0  I1
o EI < 0  as I rises, D for “X” falls, so “X” is an INFERIOR good
o 0 < EI < 1  as I rises, D for “X” rises by a small amount, so “X” is a
NECESSITY (NORMAL) good
o EI > 1  as I rises, D for “X” rises by a lot, so “X” is a LUXURY (NORMAL)
good
 Cross-Price Elasticity of Demand (XD): This relates the quantity demanded of one good (“X”) to the price of a related
good (“Y”).
o XD > 0  PY , Q X , so good “X” and the related good “Y” are
Q1  Q0
SUBSTITUTES in consumption
Q0  Q1
%QXD
XD 

o XD < 0  PY  , QX , so good “X” and the related good “Y” are
P1  P0
%Prelated
COMPLEMENTS in consumption
good ,Y
P0  P1
o XD = 0  there is no relationship between the 2 goods
 Cross-Price Elasticity of Supply (XS): This relates the quantity supplied of one good (good “X”) to the price of a
related good (good “Y”).
XS
Q1
Q0
% Q XS


P1
% Prelated
goodY
P0
 Q0
 Q1
 P0
 P1
o XS > 0  PY , QX , so good “X” and the related good “Y” are
COMPLEMENTS in production
o XS < 0  PY , QX , so good “X” and the related good “Y” are
ALTERNATIVES in production
o XS = 0  there is no relationship between the 2 goods
*NOTE: You can compare XD and XS to 1 to see whether it is elastic, inelastic, or unitary elastic.