The Concept of Elasticity. Elasticity. The Concept of Elasticity. Laugher Curve
The Concept of Elasticity Elasticity
• Elasticity is a measure of the responsiveness of one variable to another. • The greater the elasticity, the gr...
• Elasticity is a measure of the responsiveness of one variable to another. • The greater the elasticity, the greater the responsiveness.
What is it and how to calculate it?
Laugher Curve
The Concept of Elasticity
Q. What’s the difference between an economist and a befuddled old man with Alzheimer’s? A. The economist is the one with a calculator.
• Elasticity is a measure of the responsiveness of one variable to another. • The greater the elasticity, the greater the responsiveness.
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Price Elasticity
Price Elasticity
• The price elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price.
• The price elasticity of supply is the proportional change in quantity demanded relative to the proportional change in price.
ED =
Percentage change in quantity demanded Percentage change in price
What Information Price Elasticity Provides • Price elasticity of demand and supply gives the exact quantity response to a change in price.
ES =
Percentage change in quantity supplied Percentage change in price
Classifying Demand and Supply as Elastic or Inelastic • Demand or supply is elastic if the percentage change in quantity is greater than the percentage change in price.
E>1
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Classifying Demand and Supply as Elastic or Inelastic • Demand or supply is inelastic if the percentage change in quantity is less than the percentage change in price.
Elastic Demand and Supply • Elastic supply means that quantity changes by a greater percentage than the percentage change in price. • The same holds true for demand.