Elasticity - Elasticity Consider 2 points on a short run...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Elasticity Consider 2 points on a short run demand curve. At a price of $5 the quantity demanded is 20 and at a price of $6 the quantity demanded is 15. Calculating the percentage change in price: the change in price is $1 and the original price is $5. The percentage change in price is Change in price divided by the original level of price. 1/5=20/100=.2 or 20% Calculating the percentage change in quantity: the change in quantity demanded is -5 and the original quantity demanded is 20. The percentage change in quantity is -5/20=-25/100=-.25 or 25%. The formula for the own-price elasticity of demand is %change quantity/%change price. In this case at a price of $5 and quantity 20, the elasticity of demand is -25/20=-125/100=1.25 If in the long run, the quantity demanded at a price of $5 remains at 20, but at a price of $6 the quantity demanded is 10. Then the percentage change in quantity is -10/20=-50/100=.5 or 50%. The long run elasticity is then -50/20=-250/100=-2.5. Notice that the long run elasticity of demand is greater (in absolute
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

Page1 / 2

Elasticity - Elasticity Consider 2 points on a short run...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online