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1
The Elasticity of Demand
Chapter 61
The Concept of Elasticity
• Elasticity
is a measure of the
responsiveness of one variable to another.
• The greater the elasticity, the greater the
responsiveness.
Laugher Curve
Q.
What’s the difference between an
economist and a befuddled old man with
Alzheimer’s?
A.
The economist is the one with a
calculator.
The Concept of Elasticity
•
Elasticity
is a measure of the
responsiveness of one variable to another.
• The greater the elasticity, the greater the
responsiveness.
Price Elasticity
• The
price elasticity of demand
is the
percentage change in quantity demanded
divided by the percentage change in price.
price
in
change
Percentage
demanded
quantity
in
change
Percentage
=
E
D
Sign of Price Elasticity
• According to the law of demand, whenever
the price rises, the quantity demanded
falls.
Thus the price elasticity of
demand is always negative.
• Because it is always negative, economists
usually state the value without the sign.
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What Information Price
Elasticity Provides
• Price elasticity of demand and supply
gives the exact quantity response to a
change in price.
Classifying Demand and Supply
as Elastic or Inelastic
• Demand is
elastic
if the percentage
change in quantity is greater than the
percentage change in price.
E > 1
Classifying Demand and Supply
as Elastic or Inelastic
• Demand is
inelastic
if the percentage
change in quantity is less than the
percentage change in price.
E < 1
Elastic Demand
• Elastic Demand means that quantity
changes by a greater percentage than the
percentage change in price.
Inelastic Demand
• Inelastic Demand means that quantity
doesn't change much with a change in
price.
Defining elasticities
• When
price elasticity
is between zero and
1 we say demand is
inelastic
.
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 Spring '10
 e

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