1-
Elasticity is the responsiveness of the market to changes in
i.
Price ---------> Ped
ii.
Income --------->Yed
iii.
Price of other goods
--------->Xed
iv.
Price of producer --------->Pes
2- Price elasticity is the percentage
change in quantity demanded over the percentage change in price E.g.
Ped = {(%D in Qd) / ( %D in P)}
3- %D is {(absolute
change) / (original change) x 100 Thus
Ped = (DQ . P) / (Q. DP) Examples:
P
(£) Qd
(units) 5 100 3 120 Ped = (DQ . P) / (Q. DP) = (20 x 5) / (100 x-2) = -1/2
4- For all normal goods, there is an
inverse relationship between price and quantity, thus Ped is negative
5- Considering the absolute
value: if
i.
Ped > 1
-------> demand is Elastic %DQ in Qd > %DQ in P
ii.
Ped < 1
-------> demand is Inelastic %DQ in Qd < %DQ in P
iii.
Ped = 1 ------->
demand is Unitary elastic %DQ in Qd = %DQ in P
6- Quantity X Price = total
expenditure of consumer Quantity X price = total revenue of
producer
