Presentation on theme: "Elasticity Definition and Useful Applications. Price Elasticity of Demand Ratio of Percentage Change in Quantity Demanded to Percentage Change in Price."— Presentation transcript:
Price Elasticity of Demand Ratio of Percentage Change in Quantity Demanded to Percentage Change in Price
Types of Elasticity Inelastic -- Percentage change in quantity demanded less than percentage change in price. Numerical value between 0 and -1 Elastic -- Percentage changes in quantity demanded exceeds the percentage change in price. Absolute value greater than 1 Unitary Elasticity - Numerical value equals 1.
Slope = P/ Q=-2 Elasticity at P=1 %DQ=(4.5-4)/4.25 %DP=(1-2)/1.5 %DQ/%DP=-.177 Elasticity at P=6 %DQ=(2-1.5)/1.75 %DP=(6-7)/6.5 %DQ/%DP=-1.86 Elasticity changes along the demand curve Unitary elasticity between P=4 and P=5 Above point of unitary elasticity, demand is elastic Below point of unitary elasticity, demand is inelastic