Elasticity and Its Application.docx - Elasticity and Its...

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Elasticity and Its Application Ebony Williams Principles of Economics Hector Morales
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Price Elasticity. Price elasticity of demand measures how receptive demand is to fluctuations in a price of a certain good. it is the percent variation in quantity demanded comparative to a 1% change in price, holding all things equal. The formula for constant Price elasticity of demand is Price elasticity of demand = % change in quantity demanded / % change in price . The law of demand states that there is a reverse affiliation between price and demand for a good. Thus, the Price elasticity of demand quantity is almost always negative. An example of Price elasticity of demand would be if the price increased by 5$ and the demand for gasoline fell by 10%, then the price elasticity of demand would be -10%/5=-2.0. Income Elasticity of demand measures the receptivity of demand to a change in revenue. For example, if my income increased by 4% and my demand for clothing increased 24% then the income elasticity of demand would be 24/4 = 6 (YED= % change in QD /change in Income.
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