econ 101 question 4
explain the measure that can be used to identify substitutes and complements
The measure used to identify substitutes and complements is called cross-price elasticity of demand. If the price of a complement for a product goes up, the demand of that product will go down using the law of demand and vise versa. If the price of a substitute for a product goes down, then the demand of that substitute will go up, thus the demand for that product will go down unless the price change matches the change in the substitute and vise versa.
how can these measures be used to predict changes in prices or changes in quantities
The measures are used to predict changes in prices by showing us a ratio of how much of a product will be sold if a price changes or if a quantity changes. If the ratio is equal to 1 then it is unit elastic and the percentage of price change will be equal to the percentage change of quantity demanded. If the ratio measurement is less then 1 then it is inelastic and the percentage price change will be more then the percentage change in quantity demanded. If the ratio measurement is more than 1 then it is elastic and the percentage change of the quantity demanded will be more then the percentage change of price.
explain how economists measure the sensitivity of demand to changes in prices and in income
To explain the sensitivity of demand to changes in prices and changes in income, economists use price elasticity and income elasticity. For price, we use percentage changes in quantity demanded for the percentage change in price. For income, we use the percentage change in quantity demanded for a percentage change in income. We use percentage changes so that they're independent of units in order to have an accurate reading.
how do economists measure the sensitivity of supply to changes in prices
To measure the sensitivity of prices for supply, economists use price elasticity of supply. Price elasticity of supply is the percentage change in quantity supplied for a percentage change in price, which measures the price sensitivity of the quantity offered for sale.