Elastic vs. Inelastic?
Elasticity = (Change in quantity/Average quantity) / (Change in price/Average price)
Elasticity = ((Q1  Q2) / (Q1 + Q2)/2 )) / ((P1  P2)/( (P1 + P2)/2))
This formula will give you an approximation of the elasticity over a range, instead of a point
specific elasticity, but as the range gets larger, the result becomes less and less accurate, which is
why many economists prefer to use the traditional measure of elasticity.
It is a little difficult to visualize why elasticity is not constant on a straightline graph without
looking at a diagram. In , the slope of this hypothetical straightline supply curve is constant
(slope = 2), but the elasticity changes as you move along the graph. Let's assume that the price of
this good is initially $3, and then increases to $5. In this case, the elasticity for the good can be
calculated as follows:
Elasticity = (% Change in Quantity) / (% Change in Price)
Elasticity = [(2  1)/1] / [(5  3)/3] =
3/2
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
This is the end of the preview.
Sign up
to
access the rest of the document.
 Fall '08
 JOMINY
 Microeconomics, Supply And Demand, elastic demand

Click to edit the document details