Price elasticity = % Change in Quantity Demanded /% change in price

% Change in Quantity demanded =( (Q2 – Q1)/Q1))* 100 - A

% Change in Price = ((P2-P1)/P1))*100-B

Price Elasticity of Demand = A/B

Q2 = 4 Q1 = 8

P2 =7 P1 =3

Find elasticity?

Q2 -Q1 = -4

(Q2-Q1)/Q1 = -4/8 = -50% A = -0.5

P2 -P1 = 7-3 =4

(P2-p1)/p1 = 4/3 = 133% B B = 1.33

Elast = A/B = -50%/133% = -0.37%

Elast = A/B = -0.5/1.33 = -0.37 Whenever the elasticity is negative, then it is a normal good.

When the elasticity is positive, it is a giffen good.

Midpoint Method

% change in quantity demanded = ((Q2-Q1)/(Q1+Q2)/2)*100 -C

% change in price demanded = ((P2-P1)/(P1+P2)/2)*100 – D

Price Elasticity of Demand = C/D

Q2 =4 Q1 =8

P2 =7 P1 =3

Midpoint method

Q2 -Q1 = -4

Q2+Q1/2 = 12/2 =6

A = 4/6 =2/3 =-0.666

P2 -P1 = 7-3=4

P2+P1/2 =10/2 = 5

B = 4/5 = 0.8

Elast = -0.666/0.8 = -0.825

Normal Good

1st method gives elast =0.37, 2nd method gives elasticity of 0.825

Comparing the elasticities, the 2nd method gives higher value.

P Q

7 0

6 2

%DelQ/%DelP

%Del P =( 6-7)/((6+7)/2) = -1/6.5 =-0.15

%Del Q = (2-0)/((2+0)/2) = 2/1 = 2

Elast = delQ/delP = 2/-0.15 = - 2/0.15 = -13.3

PQ

6 2

54

Delp = 5-6/(5+6)/2 = -1/5.5 = -0.18

Del Q = 4-2/4+2/2 = 2/3 =0.666

Elas = -3.72

PQ

Elasticity Interpretation

Compare elasticities

-0.25, -0.56, -0.74, -25.232, -101.567

1st thing

They are all normal goods

Inelastic goods (Absolute value less than 1)

-0.25, -0.56, -0.74

Elastic Goods (Abs value greater than 1) -25.232, -101.567

Compare and identify the least elastic. The absolute value which is closest to zero , here 0.25.

Compare and identify the most elastic. The absolute value which is most away from 1 , which is
101.567
Compare elasticities

24.75, -0.0002, -0.02, -0.2, -28.652, -100.34, -1000.23, 23

Least elastic

0.0002

Inelastic

0.0002, 0.02, 0.2

Elastic

28.652, 100.34, 1000.23

Most elastic

1000.23

Giffen Goods (extremely elastic)

24.75 and 23.