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3
Chapter 4: Elasticity
Slide 13
A Graphical Interpretation
of Price Elasticity
±
For small changes in price
P
Δ
P
Q
Δ
Q
elasticity
Price
=
∈
=
Where
Q
is the original quantity and
P
is the original
price
Chapter 4: Elasticity
Slide 14
A Graphical Interpretation
of Price Elasticity
±
Example
z
Originally
²
Price (
P
) = $100
²
Quantity (
Q
) = 20
z
New
²
Price (
P
) = $105
²
Quantity (
Q
) = 15
Elastic
:
5
5
25
100
5
20
5
=
=
=
∈
Chapter 4: Elasticity
Slide 15
A Graphical Interpretation
of Price Elasticity of Demand
Quantity
Price
P
D
A
Q
P

P
Q +
Q
Q
P
⎟
⎟
⎠
⎞
⎜
⎜
⎝
⎛
⎟
⎠
⎞
⎜
⎝
⎛
=
slope
Q
P
A
1
at
elasticity
ice
Pr
Chapter 4: Elasticity
Slide 16
Calculating Price Elasticity of Demand
20
Quantity
1
D
A
23 45
16
12
8
4
4
5
20
intercept
horizontal
intercept
vertical
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 Spring '08
 BRIGHTWELL
 Price Elasticity

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