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Elasticity ...

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University of Toronto St. George

Chapter 4 Elasticity41 Price Elasticity of DemandDemand is said to be elastic when quantity demanded is responsive to changes in price When quantity demanded is unresponsive to changes in price demand is said to inelasticThe Measurement of Price Elasticity Knowing the average price and average quantity is necessary to calculate elasticity Price Elasticity of Demand a measure of the responsiveness of quantity demanded to a change in the commoditys own price Percentage Change in Quantity Demanded Percentage Change in Price This measure is called the price elasticity of demanddemand elasticity The Use of Average Price and Quantity in Computing Elasticity Averages are used to avoid the ambiguity caused by the fact that when a price or quantity changes the change is a different percentage of the original value than it is of the new value QQ Q10avgPP P10 avgElasticity is always unitfreeInterpreting Numerical ElasticitiesBecause price and quantity demanded have a negative relationship demand elasticity is a negative number but elasticity is always treated as an absolute value Two Extremes i Vertical Demand CurveElasticity0 when a change in price leads to no change in quantity demanded ii Horizontal Demand CurveElasticity when a small change in price can lead to an enormous change in quantity demandedInelastic Demandfollowing a given percentage change in price there is a smaller percentage change in quantity demanded elasticity1Elastic Demandfollowing a given percentage change in price there is a greater percentage change in quantity demanded elasticity1
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