Elasticity

# Elasticity - ECON 2106 Elasticity Price elasticity of...

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ECON 2106 Elasticity Price elasticity of demand Ratio of the percent change in the quantity demanded to the percent change in the price as we move along the demand curve % change in quantity demanded =( (Change in quantity demanded/ initial quantity demanded) x 100) % change in price = ((Change in price/Initial price) x 100) Price elasticity of demand = (% change in quantity demanded / % change in price) Midpoint method Technique for calculating the percent change. Calculate changes in a variable compared with the average, or midpoint, of the starting and final values. % change in X = ((Change in X/ Average value of X) x 100) Average value of X = ((Starting value of X + final value of X)/2) Two extreme cases of Price Elasticity of Demand Demand is perfectly inelastic when the quantity demanded does not respond at all to changes in the price. o When the demand is perfectly inelastic, the demand curve is a vertical line Demand is perfectly elastic when any price increase will cause the quantity demanded to drop to zero. o

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Elasticity - ECON 2106 Elasticity Price elasticity of...

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