ECON 1050 Chapter 4: Economics-1 (1) (dragged) 4
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A substitute is positive, a complement is negative. In the figure alongside, the increase in the quantity of pizza demanded when the price of a burger (a substitute for pizza) rises. The figure also show the decreases in the quantity of a pizza demanded when the price of a soft drink (a complement of pizza) rises. You know that when the demand for a good increases, its equilibrium price rises and the equilibrium quantity of the good increases. The answer depends on the responsiveness of the quantity supplied of a good to a change in its price. The answer depends on the elasticity of supply of the good. The elasticity of supply measures the responsiveness of the quantity supplied to a change in the price of a good when all other influences on selling plans remain the same. The elasticity of supply is calculated by using the formula: The figure below, shows three cases of the elasticity of supply.