Chapter 5 Elasticity

Elasticity and Its
Applications
Copyright 2004 South-Western
In this chapter, look for the answers

to these questions:
What is elasticity? What kinds of issues can
elasticity help us to understand?
What is the price elasticity of demand?
How is it related to the demand curve?
How is it related to revenue & expenditure?
What are the income and cross-price elasticities of
demand?
What is the price elasticity of supply?
How is it related to the supply curve?
Copyright 2004 South-Western/Thomson Learning
Elasticity . . .
allows us to analyze supply and demand
with greater precision.
is a measure of how much buyers and sellers
respond to changes in market conditions
Elasticity . . .
Elastic stretchy, flexible, Index of reaction
Inelastic rigid, inflexible
Elasticities measure how responsive one variable is in
response to another variable, independent of units.
Elasticity is a numerical measure of the relative
responsiveness of quantity demanded (Qd ) or quantity
supplied (Qs ) to one of its determinants keeping other
determinants constant.
Measures the percentage change in a variable in response
to a percentage change in another variable.
Larger the value of elasticity, the more responsiveness is
quantity demanded to changes in the determinant under
consideration
ELASTICITY OF DEMAND
Demand elasticity measures the relative
responsiveness of quantity demanded to changes
in one of the determinant, assuming other
determinants remain unchanged
Measures the percentage change in quantity
demanded of a commodity in response to 1%
change in one of the determinant, assuming other
determinants remain unchanged .
ELASTICITY OF DEMAND : TYPES

Types of Elasticity of Demand : depends on
which determinant brings out a change in
quantity demanded of a commodity
Determinant of Demand
Price of the Commodity
Income of the Consumer
Elasticity of Demand
Price elasticity of demand
Income elasticity of demand
Price of Related Commodity Cross elasticity of demand

Advertisement Expenditure Promotional elasticity of
demand
Price Expectation
Expectations elasticity of
demand
Price Elasticity of Demand

Price elasticity of demand is relative responsiveness of
quantity demanded of a commodity to a change in
price of the commodity, keeping other determinants
of demand constant.
Price elasticity of demand measures how much Qd
responds to a change in P.
Loosely speaking, it measures the price-sensitivity of

buyers demand.
Price elasticity
of demand
Percentage change in Qd
Percentage change in P
7

Price elasticity
of demand
P
Example:
Price elasticity
of demand
equals
15%
10%
P rises
by 10%
P2
P1
D
= 1.5
Q2
Q1
Q falls
by 15%
8

Price elasticity
of demand
Along
AlongaaDDcurve,
curve,PPand
andQQmove
move
in
inopposite
oppositedirections,
directions,which
which
would
wouldmake
makeprice
priceelasticity
elasticity
negative.
negative.
We
Wewill
willdrop
dropthe
theminus
minussign
sign
and
andreport
reportall
allprice
priceelasticities
elasticities
as
aspositive
positivenumbers.
numbers.
P
P2
P1
D
Q2
Q1
PRICE ELASTICITY OF DEMAND

Important Observations
Price elasticity, ep will always have a negative value,

because of inverse relationship between price and
quantity demanded
Price elasticity, ep is a ratio of marginal demand

dQ/dP to average demand Q/P
Elasticity is unit less or dimension less concept
The coefficient of elasticity is ordered according to
absolute value as opposed to algebraic value. Hence an
elasticity of 2 is greater than an elasticity of -1
Calculating Percentage Changes

Standard method
of computing the
percentage (%) change:
Demand for
ice-cream
P
25
end value start value

start value
20
D
8
12
x 100%
Going from A to B,
the % change in P equals
(2520)/20 = 25%
11

Problem:
The standard method gives
different answers depending on
where you start.
Demand for
Ice-cream
P
25
B
A
20
D
8
12
From A to B,
P rises 25%, Q falls 33%,
elasticity = 33/25 = 1.33
From B to A,
P falls 20%, Q rises 50%,
elasticity = 50/20 = 2.50
12
Calculating Percentage
Changes
So, we instead use the midpoint (arc) method:
end value start value

x 100%
midpoint
The midpoint is the number halfway between the
start & end values, the average of those values.
It doesnt matter which value you use as the start

and which as the end you get the same answer
either way!
13
The Midpoint Method: A Better

Way to Calculate Percentage
Changes
and
Elasticities
The midpoint
(arc)
formula is preferable
when calculating the price elasticity of demand
because it gives the same answer regardless of
the direction of the change.
(Q 2 Q 1) / [(Q 2 Q 1) / 2 ]
P ric e e la s tic ity o f d e m a n d =
(P 2 P 1 ) / [(P 2 P 1 ) / 2 ]
Where Q1 = Initial Quantity demanded
Q2 = Quantity demanded after price change
P1 = Initial Price
P2 = Changed Price

Using the midpoint (arc) method, the % change in P
equals
25 20
x 100% = 22.2%
22.5
The % change in Q equals

12 8
x 100% = 40.0%
10
The price elasticity of demand equals
40/22.2 = 1.8
15
Calculating Price Elasticity of

Demand given Demand Function
Given demand function Qd = a - bP
ep =
dQd P
d
dP Q
The Demand function for ballpoint pen is

P = 200 2Qd
Compute price elasticity at a price of Rs. 10.
At P = 10, Qd = 95, dQd / dP = - 0.5
dQd P
ep = d = (-0.5) * (10 / 95) = - 0.056
dP Q
16
The Variety of Demand Curves

Inelastic Demand
Quantity demanded does not respond strongly to
price changes.
Price elasticity of demand is less than one.
Elastic Demand
Quantity demanded responds strongly to changes in
price.
Price elasticity of demand is greater than one.
The Variety of Demand Curves

The price elasticity of demand is closely
related to the slope of the demand curve.
Rule of thumb:
The flatter the curve, the bigger the elasticity.
The steeper the curve, the smaller the elasticity.
Five different classifications of D curves.
18
Perfectly inelastic demand (one extreme case)

Price elasticity
=
of demand
% change in Q
% change in P
P
D curve:
vertical
10%
=0
P1
Consumers
price sensitivity:
none
Elasticity:
0
0%
P2
P falls
by 10%
Q1
Q changes
by 0%
19
Relatively Inelastic Demand

Price elasticity
=
of demand
% change in Q
% change in P
<1
10%
D curve:
relatively steep
P1
Consumers
price sensitivity:
relatively low
Elasticity:
<1
< 10%
P2
D
P falls
by 10%
Q1 Q2
Q rises less
than 10%
20
Unit Elastic Demand

Price elasticity
=
of demand
% change in Q
% change in P
10%
=1
D curve:
intermediate slope
P1
Consumers
price sensitivity:
intermediate
Elasticity:
1
10%
P2
P falls
by 10%
D
Q1
Q2
Q rises by 10%
21
Relatively Elastic Demand

Price elasticity
=
of demand
% change in Q
% change in P
10%
>1
D curve:
relatively flat
P1
Consumers
price sensitivity:
relatively high
Elasticity:
>1
> 10%
P2
P falls
by 10%
Q1
Q2
Q rises more
than 10%
22
Perfectly Elastic Demand (the other extreme)

Price elasticity
=
of demand
% change in Q
% change in P
Elasticity:
infinity
0%
= infinity
D curve:
horizontal
Consumers
price sensitivity:
extreme
any %
P2 = P1
P changes
by 0%
Q1
Q2
Q changes
by any %
23
PRICE ELASTICITY OF DEMAND :

RANGES
Perfectly Inelastic (ep = 0) : Any change in price does not

bring any change in quantity demanded
Relatively Inelastic (0<ep <1) : Proportionate change in
price is greater than proportionate change in quantity
demanded
Unitary Elastic (ep =1) : Proportionate change in price
results an equally proportionate change in quantity
demanded
Relatively Elastic (1<ep <): Proportionate change in
quantity demanded is greater than proportionate change in
price
Perfectly Elastic (ep = ) : Demand changes significantly,
even if there is no change in price
PRICE ELASTICITY OF DEMAND: ON

A DEMAND CURVE
Geometrical (Diagrammatic): Ratio of the two
segments of the horizontal axis identified by the
intersection of the tangent to the point
considered, with the horizontal axis and by the
perpendicular from that point to the same axis
Lower
segment
of
the
tangent
ep =
Upper segment of the tangent
Elasticity of a Demand Curve

P
A
ep = AB / 0 =
ep > 1
ep = AC / BC = 1, C is the
C
mid point of AB
ep
<1
ep = 0 / AB = 0
0
26
PRICE ELASTICITY OF DEMAND: IN A

LINEAR DEMAND CVURVE
Q/Q
Q
1Q2
OP
1
Q
Q
ep = =
OQ1 P1P2
P/P
PP
FG
OP1
FG
OP1
=
=
= OQ1 GE
GE
OQ1
Q1D OP1
Q1D
ED
= =
=
OP1 OQ1
OQ1
CE
Elasticity of a Linear Demand Curve

P
200%
E=
= 5.0
40%
Rs.30
67%
E=
= 1.0
67%
20
40%
E=
= 0.2
200%
10
Rs.0
20
40
60
The slope
of a linear
demand
curve is
constant,
but its
elasticity
is not.
28
Price Elasticity and Total

Revenue
Continuing our scenario, if you raise your price
from Rs.20 to Rs.25, would your revenue rise or fall?
Revenue = P x Q
A price increase has two effects on revenue:
Higher P means more revenue on each unit
you sell.
But you sell fewer units (lower Q),
due to Law of Demand.
Which of these two effects is bigger?
It depends on the price elasticity of demand.
29

Revenue
Price elasticity
of demand
Percentage change in Q
Revenue = P x Q
If demand is elastic, then

price elasticity of demand > 1
% change in Q > % change in P
The fall in revenue from lower Q is greater

than the increase in revenue from higher P,
so revenue falls.
30

Revenue
Elastic demand
(elasticity = 1.8)
If P = Rs.20,
Q = 12 and revenue
= Rs.240.
If P = Rs.25,
Q = 8 and
revenue = Rs.200.
When D is elastic,
a price increase
causes revenue to fall.
increased
revenue due
to higher P
Rs.25
Rs.20
Demand for
Ice-cream
lost
revenue
due to
lower Q
D
12
Q
31

Revenue
Price elasticity
of demand
Percentage change in Q
Revenue = P x Q
If demand is inelastic, then
price elasticity of demand < 1
% change in Q < % change in P
The fall in revenue from lower Q is smaller
than the increase in revenue from higher P,
so revenue rises.
In our example, suppose that Q only falls to 10 (instead
of 8) when you raise your price to Rs.25.
32

Revenue
Now, demand is
inelastic:
elasticity = 0.82
If P = Rs.20,
Q = 12 and revenue
= Rs.240.
Demand for
Ice-cream
increased
revenue due
to higher P
lost
revenue
due to
lower Q
Rs.25
Rs.20
If P = Rs.25,
Q = 10 and
revenue = Rs.250.
When D is inelastic,
a price increase
causes revenue to rise.
10
12
Q
33

Revenue
Price Quan Total
%
%
Elastic
tity Reven Change Change ity
ue
Price Quantity
7
0
0
6
2
12
-15.4
200.0 -13.0
5
4
20
-18.2
66.7 -3.7
4
6
24
-22.2
40.0 -1.8
3
8
24
-28.6
28.6 -1.0
2
10
20
-40.0
22.2 -0.6
1
12
12
-66.7
18.2
14
-200.0
15.4
Description
Relatively Elastic
Relatively Elastic
Relatively Elastic
Unitary Elastic
Relatively
Inelastic
-0.3
Relatively
Inelastic
-0.1
Relatively
PRICE ELASTICITY OF DEMAND:

MEASUREMENT
Total Outlay or Revenue or Expenditure Method :
Increase in
Total
Revenue
Decrease in
Total
Revenue
Total
Revenue
Remaining
Constant
UNIT
ELASTIC
DEMAND
Increase in
Price
INELASTIC
DEMAND
ELASTIC
DEMAND
Decrease in
Price
ELASTIC
DEMAND
INELASTIC
DEMAND
UNIT
ELASTIC
DEMAND
What determines price elasticity?

To learn the determinants of price elasticity,
we look at a series of examples.
Each compares two common goods.
In each example:
Suppose the prices of both goods rise by 20%.
The good for which Qd falls the most (in percent) has
the highest price elasticity of demand.
Which good is it? Why?
What lesson does the example teach us about the
determinants of the price elasticity of demand?
EXAMPLE 1:
Thumps-up vs. Sugar

The prices of both of these goods rise by 20%.
For which good does Qd drop the most? Why?
Thumps-up has lots of close substitutes

(e.g., Coca Cola, Sprite),
so buyers can easily switch if the price rises.
Sugar has no close substitutes,
so consumers would probably not
buy much less if its price rises.
Lesson: Price elasticity is higher when close
substitutes are available.
EXAMPLE 2:
Blue
Jeans
vs.
Clothing
The prices of both goods rise by 20%.

For a narrowly defined good such as

blue jeans, there are many substitutes
(khakis, shorts, Speedos).
There are fewer substitutes available for broadly
defined goods.
(Can you think of a substitute for clothing,
other than living in a nudist colony?)
Lesson: Price elasticity is higher for narrowly

defined goods than broadly defined ones.
EXAMPLE 3:
Insulin vs. Car

The prices of both of these goods rise by 20%.
To millions of diabetics, insulin is a necessity.

A rise in its price would cause little or no decrease
in demand.
A car is a luxury. If the price rises,
some people will forego it.
Lesson: Price elasticity is higher for luxuries than for
necessities. For necessities, it is inelastic.
EXAMPLE 4:
Gasoline in the Short Run vs.

Gasoline in the Long Run
The price of gasoline rises 20%. Does Qd drop more in

the short run or the long run? Why?
Theres not much people can do in the

short run, other than ride the bus or carpool.
In the long run, people can buy smaller cars
or live closer to where they work.
Lesson: Price elasticity is higher in the

long run than the short run.
The Determinants of Price Elasticity:

A Summary
The
The price
price elasticity
elasticity of
of demand
demand depends
depends on:
on:
the
the extent
extent to
to which
which close
close substitutes
substitutes are
are available
available
whether
whether the
the good
good isis aa necessity
necessity or
or aa luxury
luxury
how
how broadly
broadly or
or narrowly
narrowly the
the good
good isis defined
defined
the
the time
time horizon:
horizon: elasticity
elasticity isis higher
higher in
in the
the long
long
run
run than
than the
the short
short run.
run.
INCOME ELASTICITY OF DEMAND

the responsiveness of demand to a change in
consumer income, Y
It is computed as the percentage change in the quantity
demanded divided by the percentage change in income.
If we substitute variable income for variable price,
then the formula for measuring income-elasticity of
demand is same as for measuring price-elasticity of
demand
Income elasticity of demand is always positive except for
inferior goods
MEASSURING INCOME ELASTICITY

OF DEMAND
Example: 24 DVDs demanded (Qd) when consumers income (Y) is

Rs. 20000. When income increased to
Rs. 25000, demand for
DVD increases to 30. Calculate income elasticity of demand. (use
mid-point method)
Answer:
ey = % in Qd / % in Y
= ((30 -24)/(30+24)) / ((25000 20000) / (25000+20000))
= (6 / 54 ) / (5000 / 45000) = ( 1/9 ) / (1/9) = 1
(Find what you are getting using percentage method)
Unitary income elasticity of demand implying 1% increase in
income of the consumer leads to 1 % increase in quantity demanded of
DVD
DVD in question is a normal commodity since income elasticity of
demand is positive
MEASSURING INCOME ELASTICITY

OF DEMAND
If demand function is given (Qd is a function of Income)
Calculate income elasticity of demand at income level (Y) of

25000 if the demand function is Qd = 600 - 0.02 Y
Rs.
Answer: At Y = 25,000, quantity demanded = 600 - 500 = 100
ey =( dQ / dY) * ( Y / Q)
= (-)0.02 * (25000 / 100) = (-) 5
Income elasticity of demand is elastic in nature implying 1% increase
in income of the consumer leads to 5 % decrease in quantity demanded
of the commodity
The commodity in question is an inferior commodity since income
elasticity of demand is negative.
INCOME ELASTICITY OF DEMAND
Nature of Commodities and Income Elasticity of Demand

Goods
Income-elasticity
Effect on sale
Essential or
Necessary
goods
Less than unity
Less than proportionate

change in sale
Comforts or
Semi-luxuries
Almost equal to
unity
Almost proportionate
change in sale
Luxuries
Greater than
unity
More than proportionate

increase in sale
CROSS ELASTICITY OF DEMAND

the responsiveness of demand of a commodity to a change
in the price of its related (substitutes and complementary)
commodities
It is computed as the percentage change in the quantity
demanded divided by the percentage change in the price of
substitute or complementary commodities.
Positive cross elasticity : Substitutes
Negative cross elasticity : Complementary commodities
Zero cross elasticity : Independent commodities
The greater the absolute value of cross elasticity of demand, the
more intense is the relationship existing between the two goods
MEASURING CROSS ELASTICITY

OF DEMAND
Example: 2 units of Pizza is demanded (Qd) when the price of
Burger is Rs. 20. When price of Burger increases to Rs. 25,
demand for Pizza increases to 4. Calculate cross elasticity of
demand using mid-point method.
Answer:
ePB = % in Qd of Pizza / % in Price of Burger

= ((4 -2)/(4+2)) / ((25 20) / (25+20))
= (2 / 6 ) / (5 / 45) = ( 1/3 ) / (1/9) = 3
Cross elasticity of demand is elastic in nature, implying 1%

increase in price of Burger leads to 3 % increase in quantity
demanded of Pizza.
Pizza and Burger in question are substitute commodities since
cross elasticity of demand is positive.
MEASSURING CROSS ELASTICITY

OF DEMAND
If demand function is given (Qd is a function of Price of related

commodity)
The demand function for Burger is estimated at
QB = 6 - 0.2 PT, Where QB = Quantity demanded of Burger and PT is the
Price of Tomato Ketchup.
Calculate cross elasticity of demand at P T = 20.
Answer: At PT = 20, QB = 6 - 4 = 2
eTB =( d QB / d PT) * (PT / QB)
= (-)0.2 * (20 / 2) = (-) 2
Cross elasticity of demand is elastic in nature implying 1% increase in Price
of Tomato Ketchup leads to 2 % decrease in quantity demanded for Burger
Burger and Tomato Ketchup in question are complementary to each other
since cross elasticity of demand is negative.
Time Watch Co. assembles wrist watches and sells in Western India. Demand
function faced by the Company is estimated to be
Q = 40,000 2 Pt 2Y + 4Pc
Where,
Q = Number of watches demanded from Time Watch Co.
Pt = Price of watches sold by Time Watch Co.
Y = Per-capita income in Western India
Pc = Price charged by Casio Watch Co, the competitors
Currently Pt, I and Pc are Rs. 350, Rs.10,000 and Rs. 400 respectively
Estimate
a) Price elasticity of demand;
b)Income elasticity of demand and comment on nature of product;
c)Cross elasticity of demand and bring how these two watches relates to each
other.
d)Do you recommend an increase in price if Times Watch Co. wanted to
maximise sales revenue ? Justify
Q = 40,000 2 Pt 2Y + 4Pc
When Pt, Y and Pc are Rs. 350, Rs.10,000 and Rs. 400 respectively,
Q = 40,000 700 20,000 + 1600 = 20,900
a) Price elasticity of demand = (-2) * (350 / 20900) = - 7 / 209 = - 0.03349
b) Income elasticity of demand = (-2) * (10000/20900) = - 0.96
Nature of product since ei < 0, Inferior commodity
c) Cross elasticity of demand = (4) * (400/20900) = 0.0766
Nature of relationship since ei > 0, Substitutes
d)Yes. Sales can be maximised when MR = 0 or ep = 1.
Since demand is inelastic, increase in price will increase sales revenue.
THE ELASTICITY OF SUPPLY

Price elasticity of supply is a measure of how
much the quantity supplied of a good responds
to a change in the price of that good.
Price elasticity of supply is the percentage
change in quantity supplied resulting from a
percent change in price.
Price Elasticity of Supply

Price elasticity
of supply
Percentage change in Qs
Price elasticity of supply measures how

much Qs responds to a change in P.
Loosely speaking, it measures the price-sensitivity of

sellers supply.
Again, use the midpoint method to compute the

percentage changes.

Price elasticity
of supply
Example:
45 units of pen is supplied

at a price Rs.10. When
price increases to Rs. 15,
80 units is supplied. Find
elasticity of supply.
Percentage change in Qs
P
P rises P2
by 40% 15
P1
10
Q rises
Price elasticity 56%
= 1.4 by 56%
=
of supply
40%
Q1
Q2
45
80

Price Elasticity of Supply Given Supply Function
dQs P
e
s =
Example:
P
dP Qs
The supply function for ballpoint pen is
Qs = 100 + 2P
Compute price elasticity at a price of
Rs. 10.
At P = 10, Qs = 120, dQs / dP = 2
P2
15
P1
10
Q1
Q2
45
80
es = 2 * (10/120) = 1/6
The Variety of Supply Curves

Economists classify supply curves according to
their elasticity.
The slope of the supply curve is closely related
to price elasticity of supply.
Rule of thumb:
The flatter the curve, the bigger the elasticity.
The steeper the curve, the smaller the elasticity.
The next slides present the different
classifications, from least to most elastic.
Perfectly inelastic (one extreme)

Price elasticity
of supply
S curve:
vertical
% change in Q
% change in P
P
10%
=0
P2
Sellers
price sensitivity:
0
Elasticity:
0
0%
P1
P rises
by 10%
QQ1changes
by 0%
Inelastic
Price elasticity
of supply
S curve:
relatively steep
% change in Q
% change in P
P
10%
<1
P2
Sellers
price sensitivity:
relatively low
Elasticity:
<1
< 10%
P1
P rises
by 10%
Q1 Q2
Q rises less
than 10%
Unit elastic
Price elasticity
of supply
S curve:
intermediate slope
% change in Q
% change in P
10%
=1
P
S
P2
Sellers
price sensitivity:
intermediate
Elasticity:
=1
10%
P1
P rises
by 10%
Q1 Q2
Q rises
by 10%
Elastic
Price elasticity
of supply
% change in Q
% change in P
10%
>1
S curve:
relatively flat
S
P2
Sellers
price sensitivity:
relatively high
Elasticity:
>1
> 10%
P1
P rises
by 10%
Q1
Q2
Q rises more
than 10%
Perfectly elastic (the other extreme)

Price elasticity
of supply
% change in Q
% change in P
Elasticity:
infinity
0%
= infinity
S curve:
horizontal
Sellers
price sensitivity:
extreme
any %
P2 = P1
P changes
by 0%
Q1
Q2
Q changes
by any %
The Determinants of Supply Elasticity

The more easily sellers can change the quantity
they produce, the greater the price elasticity of
supply.
Example: Supply of beachfront property is
harder to vary and thus less elastic than
supply of new cars.
For many goods, price elasticity of supply is
greater in the long run than in the short run,
because firms can build new factories, or
new firms may be able to enter the market.
APPLICATION of ELASTICITY
Can good news for farming be bad news for
farmers?
What happens to wheat farmers and the market
for wheat when university agronomists discover
a new wheat hybrid that is more productive
than existing varieties?
THE APPLICATION OF SUPPLY,

DEMAND, AND ELASTICITY
Examine whether the supply or demand curve
shifts.
Determine the direction of the shift of the
curve.
Use the supply-and-demand diagram to see
how the market equilibrium changes.
An Increase in Supply in the Market for Wheat

Price of
Wheat
2. . . . leads
to a large fall
in price . . .
1. When demand is inelastic,

an increase in supply . . .
S1
S2
$3
2
Demand
0
100
110
Quantity of
Wheat
3. . . . and a proportionately smaller

increase in quantity sold. As a result,
revenue falls from $300 to $220.
Copyright2003 Southwestern/Thomson Learning
Summary
Price elasticity of demand measures how much
the quantity demanded responds to changes in
the price.
Price elasticity of demand is calculated as the
percentage change in quantity demanded
divided by the percentage change in price.
If a demand curve is elastic, total revenue falls
when the price rises.
If it is inelastic, total revenue rises as the price
rises.
Summary
The income elasticity of demand measures how
much the quantity demanded responds to
changes in consumers income.
The cross-price elasticity of demand measures
how much the quantity demanded of one good
responds to the price of another good.
The price elasticity of supply measures how
much the quantity supplied responds to changes
in the price. .
Summary
In most markets, supply is more elastic in the
long run than in the short run.
The price elasticity of supply is calculated as
the percentage change in quantity supplied
divided by the percentage change in price.
The tools of supply and demand can be applied
in many different types of markets.

Chapter 5 Elasticity

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Chapter 5 Elasticity

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Elasticity and Its

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In this chapter, look for the answers

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ELASTICITY OF DEMAND : TYPES

Price of Related Commodity Cross elasticity of demand

Price Elasticity of Demand

Loosely speaking, it measures the price-sensitivity of

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Price Elasticity of Demand

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Price Elasticity of Demand

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PRICE ELASTICITY OF DEMAND

Price elasticity, ep will always have a negative value,

Price elasticity, ep is a ratio of marginal demand

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Calculating Percentage Changes

end value start value

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Calculating Percentage Changes

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end value start value

It doesnt matter which value you use as the start

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The Midpoint Method: A Better

Calculating Percentage Changes

The % change in Q equals

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Calculating Price Elasticity of

The Demand function for ballpoint pen is

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The Variety of Demand Curves

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The Variety of Demand Curves

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Perfectly inelastic demand (one extreme case)

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Relatively Inelastic Demand

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Unit Elastic Demand

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Relatively Elastic Demand

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Perfectly Elastic Demand (the other extreme)

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PRICE ELASTICITY OF DEMAND :

Perfectly Inelastic (ep = 0) : Any change in price does not

PRICE ELASTICITY OF DEMAND: ON

Upper segment of the tangent

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Elasticity of a Demand Curve

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PRICE ELASTICITY OF DEMAND: IN A

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Elasticity of a Linear Demand Curve

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Price Elasticity and Total

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Price Elasticity and Total

If demand is elastic, then