Elasticity of Demand

Elasticity of Demand Response of quantity demand to any change in price.

Price Elasticity % change in quantity demanded % change in price

If Price increase by 1 %---------- Quantity demanded decrease by: More than 1 % Less than 1 % 1 % Zero 

By more than 1 % Elastic = % change in Qd > % Change in price Elasticity = % change in quantity demanded % change in price Example = luxury Goods Qd P 200 400 100 1200

By less than 1 % InElastic =% change in price > % change in quantity demanded. Elasticity = % change in quantity demanded % change in price Example = Food

Qd P 200 400 350

Elasticity= % change in quantity demanded %change in price By 1 % Unit elastic = % change in Qd = % change in price. Elasticity= % change in quantity demanded %change in price P Q

Equal Zero Perfectly inelastic= % change in QD =zero Elasticity = % change in quantity demanded % change in price Example = Medecin P Q D Elasticity = 0 Perfectly Inelastic

Equal  Perfectly Elastic=% in price = Zero Elasticity = % change in quantity demanded % Change in price Example= substitute Goods

Equal  D Elasticity =  P Q Perfectly Elastic

Example If the price of product X increased from $ 2 to $ 6 and the quantity demanded decreased from 100 kg to 50 kg Find: 1- Price Elasticity of demand. 2-Type of demand. 3 – Explain it’s meaning.

Elasticity E =Ed = (Qd2-Qd1) * ( p1 ) P2-P1 Qd1 6-2 100 2- Demand on this product is Inelastic. 3-If price increase by 1 % , the quantity demanded will decrease by 0.25 %.

Example 2 If a % change in quantity demanded by 30 % is associated with 60% change in price. What is the price Elasticity of demand?

Answer Elasticity = % change in quantity demand % change in price 60 If the price changes by 1 % , quantity demanded changes in other direction by 0.5%.

Example 3 If the price of good X increased from L.E 4 to L.E 6 and the quantity demanded decrease from 100 Kg to 60 Kg Calculate the price elasticity and explain it’s meaning?

ANSWER E =Ed = (Qd2-Qd1) * ( p1 ) p2-p1 Qd1 1-E d = 60-100 * 4 = 6-4 100

Example 4 If 50 %decrease in price doesn’t change the quantity demanded for this good , Find the price elasticity and a 30 % decrease in quantity demanded was associated by increase in price by 20% Find the elasticity and explain it’s meaning?

Answer 1) E = % change in quantity demanded % change in price E= zero / 50 = Zero 2) E = 30 /20 = -1.5 Elastic If price increase by 1 % , Quantity demanded will decrease by 1.5 %.