# Exploring Elasticity

1. When you cut through all the economic jargon, elasticity is simply a description of stimulus-response patterns--how high will you jump if I pinch you. In fact, the formula for any elasticity measurement is:

(percentage change in response) divided by (percentage change in stimulus).

When I say something mildly rude to my sister-in-law, she blows up. A small stimulus leads to a big response--an economist would say that this situation is very elastic. On the other hand, my brother-in-law never reacts much at all no matter what I say--even a big stimulus prompts only a small or inelastic response.

a) In 2005 and 2006 there was a substantial rise in oil prices. If you are OPEC, do you want consumers to respond a little or a lot to the stimulus of higher gasoline prices? Explain. Then put this in the economic jargon of elasticity.
b) Suppose that you are leading a campaign to reduce teenage smoking and you want to tax cigarettes more. Do you want teenagers to respond a little or a lot to the tax? Explain. Then use the economic jargon of elasticity to restate this situation.
c) Suppose that you are legislator trying to balance a budget and you are raising the tax on cigarettes. Do you want smokers to respond a little or a lot? Explain. Then use the economic jargon of elasticity to restate this situation.
d) Suppose that you are a college president who has just raised tuition. Do you want students to respond a little or a lot to the stimulus of higher prices? Explain. Then use the economic jargon of elasticity to restate this situation.
e) Suppose you are an automobile manufacturer who has just offered a rebate on some of your car models. Do you want the public to respond a little or a lot to the stimulus of lower prices? Explain. Then use the economic jargon of elasticity to restate this situation.