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Unformatted text preview: Let's apply this and solve for elasticity in the market for ping pong balls. When ping pong balls cost $1 each, Alice is willing to buy 10 balls, and Joe is willing to sell 10 balls. When they cost $1.50 each, Alice is willing to buy 6 balls, and Joe is willing to sell 20. First, let's solve for Alice's price elasticity of demand: % Change in Quantity = (6-10)/10 = -0.4 = -40% % Change in Price = (1.50-1)/1 = 0.5 = 50% (-40%)/(50%) = -0.8 Take the absolute value to find elasticity. Elasticity of Demand = 0.8 Now, we use the same process to find Joe's price elasticity of supply: % Change in Quantity = (20-10)/10 = 1 = 100% % Change in Price = (1.50-1)/1 = 0.5 = 50% Elasticity of Supply = (100%)/(50%) = 2 Elastic vs. Inelastic? An elasticity of 1 is the established borderline between elastic and inelastic goods. A curve with an elasticity of 1 is called unit elastic; an elasticity of 1 indicates perfect...
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- Fall '11