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Elasticities of
Demand and
Supply
4.1 THE PRICE ELASTICITY OF DEMAND
$5 – $3
Percent change in price = x 100 = 66.67 percent
$3
4.1 THE PRICE ELASTICITY OF DEMAND
$3 – $5
Percent change in price = x 100 = – 40 percent
$5
4.1 THE PRICE ELASTICITY OF DEMAND
$5 – $3
Percent change in price = x 100
($5 + $3) ÷ 2
3. Demand is perfectly
inelastic.
4.1 THE PRICE ELASTICITY OF DEMAND
100%
Price elasticity of demand = = 2
50%
4.1 THE PRICE ELASTICITY OF DEMAND
If demand is elastic:
• A given percentage rise in price brings a larger
percentage decrease in the quantity demanded.
• And total revenue decreases.
If demand is inelastic:
• A given percentage rise in price brings a smaller
percentage decrease in the quantity demanded.
• And total revenue increases.
4.1 THE PRICE ELASTICITY OF DEMAND
Inelastic supply
The percentage change in the quantity supplied is less than
the percentage change in price.
Cross
– 5 percent
elasticity of = = 0.5
demand – 10 percent
4.3 CROSS ELASTICITY AND INCOME ELASTICITY
Cross elasticity of
demand is positive.
5.3 CROSS ELASTICITY AND INCOME ELASTICITY
4.3
Cross elasticity of
demand is negative.
4.3 CROSS ELASTICITY AND INCOME ELASTICITY