This preview shows pages 1–2. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.View Full Document
Unformatted text preview: ELASTICITY Elasticity a measure of how much buyers and sellers respond to changes in market conditions *a measure of the responsiveness of quantity demanded or quantity supplied to one of its determinants A. ELASTICITY OF DEMAND 1. Price Elasticity of demand a measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as: Percentage change in quantity demanded Percentage change in price Computed elasticity (coefficient) gives us values as: a) greater than 1 (elastic): the quantity demanded responds substantially to changes in the price b) less than 1 (inelastic): quantity demanded responds only slightly to changes in the price c) equal to 1 (unitary): quantity demanded responds in the same magnitude as to changes in the price d) equal to zero (perfectly inelastic): quantity demanded does not respond to changes in the price Calculating elasticities using the midpoint method: = [ ] [ ] 2 / ) ( / ) ( 2 / ) ( / ) ( 2 1 1 2 2 1 1 2 P P P P Q Q Q Q +- +-...
View Full Document
- Spring '10