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...
Author: Noreen Hawkins
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The Concept of Elasticity Elasticity

• 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

2

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.

E