Such a policy will increase the quantity if the supply curve for financial capital is elastic, because then a given percentage increase in the return to savings will cause a higher percentage increase in the quantity of savings. Sometimes laws are proposed that seek to increase the quantity of savings by offering tax breaks so that the return on savings is higher. The income elasticity of demand is the percentage change in quantity demanded divided by the percentage change in income, as follows: Elasticity can, in principle, be measured for any determinant of supply and demand, not just the price. Similarly, quantity supplied (Qs) depends on the cost of production, changes in weather (and natural conditions), new technologies, and government policies. Recall that quantity demanded (Qd) depends on income, tastes and preferences, population, expectations about future prices, and the prices of related goods. The basic idea of elasticity-how a percentage change in one variable causes a percentage change in another variable-does not just apply to the responsiveness of supply and demand to changes in the price of a product. S’more ingredients: negative or positive cross-price elasticities of demand?
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