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Elasticity

Elasticity . Economics 2327. D. P. A. 3. B. 2. Q. 5. 7. 2/1 = 2 2/100 = .02 20/1 = 20. Price Elasticity of demand. percentage change in quantity demanded. =. percentage change in price. usually drop the minus sign. Arch Elasticity Formula.

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Elasticity

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  1. Elasticity Economics 2327

  2. D P A 3 B 2 Q 5 7 2/1 = 2 2/100 = .02 20/1 = 20

  3. Price Elasticity of demand percentage change in quantity demanded = percentage change in price usually drop the minus sign

  4. Arch Elasticity Formula

  5. %  Q >%  P (which meansElasticity > 1): “elastic” %  Q <%  P (which meansElasticity < 1): “inelastic” %  Q =%  P (which meansElasticity = 1): “unit elastic”

  6. Price falls from $1.05 to .95 causing quantity to increase from 45 to 55. %  Q = 10/50 = 20% %  P = 10/100 = 10% ED = 20%/10% = 2 (“elastic”) Price falls from $1.05 to .95 causing quantity to increase from 45 to 49. %  Q = 4/47 = 8% %  P = 10/100 = 10% ED = 8%/10% = .8 (“inelastic”)

  7. Previous total expenditure = P0 x Q0 New total expenditure: .9P0 x 1.2Q0 = (.9 x 1.2)(P0Q0) = 1.08 P0Q0 OR .9P0 x 1.05Q0 = (.9 x 1.05)(P0Q0) = .945 P0Q0

  8. Previous total expenditure = P0 x Q0 New total expenditure: .9P0 x 1.2Q0 = (.9 x 1.2)(P0Q0) = 1.08 P0Q0 “elas” OR .9P0 x 1.05Q0 = (.9 x 1.05)(P0Q0) = .945 P0Q0 “inelas”

  9. E= (2/5) / (2/9) = 40% / 22% = 1.8 P A 10 B 8 C 5 D 3 Q 9 11 4 6

  10. P A 10 B 8 E= (2/10) / (2/4) = .4 C 5 D 3 Q 9 11 4 6

  11. E= (2/5) / (2/9) = 40% / 22% = 1.8 P A 10 B 8 E= (2/10) / (2/4) = .4 C 5 D 3 Q 9 11 4 6

  12. P E= 1 Q

  13. P E= 1 Q gray area marks biggest rectangle (max total revenue)

  14. P E > 1 E= 1 E < 1 Q Total Exp Q

  15. Elasticity Video

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