1 / 7

Understanding Price Elasticity of Demand and Income Elasticity Formulas

Learn how to calculate arc price elasticity for demand curve D, practice with various scenarios, and understand income elasticity of demand using different formulas and concepts.

cooper-beard
Télécharger la présentation

Understanding Price Elasticity of Demand and Income Elasticity Formulas

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Elasticity

  2. Calculating the Arc Elasticity If Ed > 1, demand is said to be “price elastic”. If Ed < 1, demand is said to be “price inelastic”.

  3. %  of Qd d = %  of P Arc price elasticity for demand Curve D: The price decreases from $10 to $8 First, start with the top of the formula %  of Qd (which means) (90 – 80) = 10 = (0.117) .12 (90 + 80)/2 = 85 .12 Second, figure out the bottom formula %  of P (which means) Now Divide = (0.545) .22 (10 – 8) = 2 = (0.222) .22 (10 + 8)/2 = 9

  4. %  of Qd d = %  of P Arc price elasticity for demand Curve D1: The price decreases from $10 to $8 (110 – 80) = 30 = 0.32 (110 + 80)/2 = 95 .32 Now Divide = 1.45 .22 (10 – 8) = 2 = 0.22 (10 + 8)/2 = 9

  5. Practice! %  of Qd d = %  of P • What is the arc elasticity from P = 9 to P =8? (1 – 2) = |-1| = 1 = 0.67 (1 + 2)/2 = 1.5 0.67 = 5.58 0.12 (9 – 8) = 1 = 0.12 (9 + 8)/2 = 8.5

  6. Income of Elasticity of Demand %  of Qd d = • If εI > 1, the good is normal and income elastic (a luxury). • If 1 > εI > 0, the good is normal but income inelastic (a necessity). • If εI < 0, the good is inferior. %  of I

  7. So, now you know how to use the formula. • Apply the same concept to these other formulas.

More Related