Elasticity
Price elasticity of demand(the mid-point method)Elasticity
Price elasticity of demandProportionate (or %) ∆QDProportionate (or %) ∆P
÷Price elasticity of demandProportionate (or %) ∆QDProportionate (or %) ∆P∆QDQD∆PP
÷Price elasticity of demandProportionate (or %) ∆QDProportionate (or %) ∆P∆QDQD∆PP÷∆QDmid QD∆Pmid P
Price (£)QuantityPrice elasticity of demand1210864200 10 20 30 40 50 60 70DPrice Quantity12 010 108 206 304 402 500 60
Price (£)Quantity1210864200 10 20 30 40 50 60 70DPrice Quantity12 010 108 206 304 402 500 60abPrice elasticity of demand
Price (£)Quantity1210864200 10 20 30 40 50 60 70DPrice Quantity12 010 108 206 304 402 500 60abMid P = 9∆P = −2Mid QD = 15∆...
Price (£)Quantity1210864200 10 20 30 40 50 60 70DabMid P = 9Mid QD = 15∆P = −2∆QD = 10εd = ÷∆QDmid QD∆Pmid Pεd = ÷1015−29ε...
Price (£)Quantity1210864200 10 20 30 40 50 60 70DabMid QD = 45∆QD = 10∆P = −2Mid P = 3Price Quantity12 010 108 206 304 402...
Price (£)Quantity1210864200 10 20 30 40 50 60 70DabMid QD = 45∆QD = 10εd = ÷∆QDmid QD∆Pmid Pεd = ÷1045−23εd = −1/3 (inelas...
Price (£)Quantity1210864200 10 20 30 40 50 60 70DabMid QD = 30∆QD = 20∆P = −4Price Quantity12 010 108 206 304 402 500 60Mi...
Price (£)Quantity1210864200 10 20 30 40 50 60 70DabMid QD = 30∆QD = 20∆P = −4Mid P = 6cεd = ÷∆QDmid QD∆Pmid Pεd = ÷2030−46...
Demand andConsumer ExpenditureElasticity
Price (£)QuantityDemand and Consumer Expenditure60504030201000 10 20 30 40 50 60 70D1
aPrice (£)Quantity60504030201000 10 20 30 40 50 60 70£30 x 20£30 x 20= £600= £600Demand and Consumer ExpenditureD1
baPrice (£)Quantity60504030£20 x 60 = £1,200£20 x 60 = £1,200201000 10 20 30 40 50 60 70Demand and Consumer ExpenditureD1
Price (£)Quantity60504030201000 10 20 30 40 50 60 70£30 x 20£30 x 20= £600= £600D2Demand and Consumer ExpenditureD1a
cPrice (£)Quantity60504030201000 10£10 x 30 = £300£10 x 30 = £30020 30 40 50 60 70D2Demand and Consumer ExpenditureD1a
Curves with variouselasticitiesElasticity
Totally inelastic demand (Totally inelastic demand (PP∈∈DD = 0)= 0)PQO Q1P1Da
PQO Q1P1P2DbaTotally inelastic demand (Totally inelastic demand (PP∈∈DD = 0)= 0)
Infinitely elastic demand (Infinitely elastic demand (PP∈∈DD == ∞∞))PQO Q1P1 Da
PQO Q1P1Q2DbaInfinitely elastic demand (Infinitely elastic demand (PP∈∈DD == ∞∞))
Unit elastic demand (Unit elastic demand (PP∈∈DD = -1)= -1)PQO 4020Da
PQO 4020100D8abUnit elastic demand (Unit elastic demand (PP∈∈DD = -1)= -1)As price changes, totalconsumer expenditure(i.e....
Different elasticities along different portions of a demand curveDifferent elasticities along different portions of a dema...
Different elasticities along different portions of a demand curveDifferent elasticities along different portions of a dema...
Different elasticities along different portions of a demand curveDifferent elasticities along different portions of a dema...
Measuring elasticityby the point methodElasticity
Measuring elasticity at a pointMeasuring elasticity at a pointPQ0DrPεd = (1 / slope) x P/Q
PQ50300 40 100DrPεd = (1 / slope) x P/QMeasuring elasticity at a pointMeasuring elasticity at a point
PQ50300 40 100DrPεd = (1 / slope) x P/Q= −100/50 x 30/40Measuring elasticity at a pointMeasuring elasticity at a point
PQ50300 40 100DrPεd = (1 / slope) x P/Q= −100/50 x 30/40= −60/40Measuring elasticity at a pointMeasuring elasticity at a p...
PQ50300 40 100DrPεd = (1 / slope) x P/Q= −100/50 x 30/40= −60/40= −1.5Measuring elasticity at a pointMeasuring elasticity ...
Different elasticities along a straight-line demand curveDifferent elasticities along a straight-line demand curvePQDemand...
Different elasticities along a straight-line demand curveDifferent elasticities along a straight-line demand curvePQDemand...
Different elasticities along a straight-line demand curveDifferent elasticities along a straight-line demand curvePQDemand...
Different elasticities along a straight-line demand curveDifferent elasticities along a straight-line demand curvePQDemand...
Price elasticity of supplyElasticity
Proportionate (or %) ∆QDProportionate (or %) ∆PThe mid-point formula formeasuring price elasticity of supply
÷Proportionate (or %) ∆QDProportionate (or %) ∆P∆QDQD∆PPThe mid-point formula formeasuring price elasticity of supply
÷Proportionate (or %) ∆QDProportionate (or %) ∆P∆QDQD∆PP÷∆QDmid QD∆Pmid PThe mid-point formula formeasuring price elastici...
Supply curves with different price elasticity of supplySupply curves with different price elasticity of supplyPQOP0Q0S1
Supply curves with different price elasticity of supplySupply curves with different price elasticity of supplyPQOP0Q0S2S1
Supply curves with different price elasticity of supplySupply curves with different price elasticity of supplyPQOP1P0Q0Q1S...
Supply curves with different price elasticity of supplySupply curves with different price elasticity of supplyPQOP1Q2P0Q0Q...
Price elasticity of supplyand timeElasticity
Supply in different time periodsSupply in different time periodsD1P1Q1PQOa
D1D2P1Q1PQOaSupply in different time periodsSupply in different time periods
D1D2SiP1P2Q1PQOabSupply in different time periodsSupply in different time periods
D1D2SiSSP1P3P2Q1 Q3PQOabcSupply in different time periodsSupply in different time periods
D1D2SiSSSLP1P4P3P2Q1 Q3Q4PQOabcdSupply in different time periodsSupply in different time periods
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Elasticity of demand

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Elast1.1

  1. 1. Elasticity
  2. 2. Price elasticity of demand(the mid-point method)Elasticity
  3. 3. Price elasticity of demandProportionate (or %) ∆QDProportionate (or %) ∆P
  4. 4. ÷Price elasticity of demandProportionate (or %) ∆QDProportionate (or %) ∆P∆QDQD∆PP
  5. 5. ÷Price elasticity of demandProportionate (or %) ∆QDProportionate (or %) ∆P∆QDQD∆PP÷∆QDmid QD∆Pmid P
  6. 6. Price (£)QuantityPrice elasticity of demand1210864200 10 20 30 40 50 60 70DPrice Quantity12 010 108 206 304 402 500 60
  7. 7. Price (£)Quantity1210864200 10 20 30 40 50 60 70DPrice Quantity12 010 108 206 304 402 500 60abPrice elasticity of demand
  8. 8. Price (£)Quantity1210864200 10 20 30 40 50 60 70DPrice Quantity12 010 108 206 304 402 500 60abMid P = 9∆P = −2Mid QD = 15∆QD = 10Price elasticity of demand
  9. 9. Price (£)Quantity1210864200 10 20 30 40 50 60 70DabMid P = 9Mid QD = 15∆P = −2∆QD = 10εd = ÷∆QDmid QD∆Pmid Pεd = ÷1015−29εd = −3 (elastic)Price elasticity of demand
  10. 10. Price (£)Quantity1210864200 10 20 30 40 50 60 70DabMid QD = 45∆QD = 10∆P = −2Mid P = 3Price Quantity12 010 108 206 304 402 500 60Price elasticity of demand
  11. 11. Price (£)Quantity1210864200 10 20 30 40 50 60 70DabMid QD = 45∆QD = 10εd = ÷∆QDmid QD∆Pmid Pεd = ÷1045−23εd = −1/3 (inelastic)∆P = −2Mid P = 3Price elasticity of demand
  12. 12. Price (£)Quantity1210864200 10 20 30 40 50 60 70DabMid QD = 30∆QD = 20∆P = −4Price Quantity12 010 108 206 304 402 500 60Mid P = 6cPrice elasticity of demand
  13. 13. Price (£)Quantity1210864200 10 20 30 40 50 60 70DabMid QD = 30∆QD = 20∆P = −4Mid P = 6cεd = ÷∆QDmid QD∆Pmid Pεd = ÷2030−46εd = −1 (unit elastic)Price elasticity of demand
  14. 14. Demand andConsumer ExpenditureElasticity
  15. 15. Price (£)QuantityDemand and Consumer Expenditure60504030201000 10 20 30 40 50 60 70D1
  16. 16. aPrice (£)Quantity60504030201000 10 20 30 40 50 60 70£30 x 20£30 x 20= £600= £600Demand and Consumer ExpenditureD1
  17. 17. baPrice (£)Quantity60504030£20 x 60 = £1,200£20 x 60 = £1,200201000 10 20 30 40 50 60 70Demand and Consumer ExpenditureD1
  18. 18. Price (£)Quantity60504030201000 10 20 30 40 50 60 70£30 x 20£30 x 20= £600= £600D2Demand and Consumer ExpenditureD1a
  19. 19. cPrice (£)Quantity60504030201000 10£10 x 30 = £300£10 x 30 = £30020 30 40 50 60 70D2Demand and Consumer ExpenditureD1a
  20. 20. Curves with variouselasticitiesElasticity
  21. 21. Totally inelastic demand (Totally inelastic demand (PP∈∈DD = 0)= 0)PQO Q1P1Da
  22. 22. PQO Q1P1P2DbaTotally inelastic demand (Totally inelastic demand (PP∈∈DD = 0)= 0)
  23. 23. Infinitely elastic demand (Infinitely elastic demand (PP∈∈DD == ∞∞))PQO Q1P1 Da
  24. 24. PQO Q1P1Q2DbaInfinitely elastic demand (Infinitely elastic demand (PP∈∈DD == ∞∞))
  25. 25. Unit elastic demand (Unit elastic demand (PP∈∈DD = -1)= -1)PQO 4020Da
  26. 26. PQO 4020100D8abUnit elastic demand (Unit elastic demand (PP∈∈DD = -1)= -1)As price changes, totalconsumer expenditure(i.e. firms’ revenue)remains the same.
  27. 27. Different elasticities along different portions of a demand curveDifferent elasticities along different portions of a demand curvePQOP1Q1aD
  28. 28. Different elasticities along different portions of a demand curveDifferent elasticities along different portions of a demand curvePQOP1P2Q1 Q2abDElasticdemand
  29. 29. Different elasticities along different portions of a demand curveDifferent elasticities along different portions of a demand curvePQOP1P2P3Q1 Q2Q3abcDInelasticdemand
  30. 30. Measuring elasticityby the point methodElasticity
  31. 31. Measuring elasticity at a pointMeasuring elasticity at a pointPQ0DrPεd = (1 / slope) x P/Q
  32. 32. PQ50300 40 100DrPεd = (1 / slope) x P/QMeasuring elasticity at a pointMeasuring elasticity at a point
  33. 33. PQ50300 40 100DrPεd = (1 / slope) x P/Q= −100/50 x 30/40Measuring elasticity at a pointMeasuring elasticity at a point
  34. 34. PQ50300 40 100DrPεd = (1 / slope) x P/Q= −100/50 x 30/40= −60/40Measuring elasticity at a pointMeasuring elasticity at a point
  35. 35. PQ50300 40 100DrPεd = (1 / slope) x P/Q= −100/50 x 30/40= −60/40= −1.5Measuring elasticity at a pointMeasuring elasticity at a point
  36. 36. Different elasticities along a straight-line demand curveDifferent elasticities along a straight-line demand curvePQDemand02468100 10 20 30 40 50nmlkPεd = (1 / slope) x P/Q
  37. 37. Different elasticities along a straight-line demand curveDifferent elasticities along a straight-line demand curvePQDemand02468100 10 20 30 40 50nmlkPεd = (1 / slope) x P/Q(1 / slope) is constant= −50/10 = −5
  38. 38. Different elasticities along a straight-line demand curveDifferent elasticities along a straight-line demand curvePQDemand02468100 10 20 30 40 50nmlkPεd = (1 / slope) x P/Q(1 / slope) is constant= −50/10 = −5But P/Q varies:at n, P/Q = 8/10
  39. 39. Different elasticities along a straight-line demand curveDifferent elasticities along a straight-line demand curvePQDemand02468100 10 20 30 40 50nmlkPεd = (1 / slope) x P/Q(1 / slope) is constant= −50/10 = −5But P/Q varies:at n, P/Q = 8/10at m, P/Q = 6/20at l, P/Q = 4/30
  40. 40. Price elasticity of supplyElasticity
  41. 41. Proportionate (or %) ∆QDProportionate (or %) ∆PThe mid-point formula formeasuring price elasticity of supply
  42. 42. ÷Proportionate (or %) ∆QDProportionate (or %) ∆P∆QDQD∆PPThe mid-point formula formeasuring price elasticity of supply
  43. 43. ÷Proportionate (or %) ∆QDProportionate (or %) ∆P∆QDQD∆PP÷∆QDmid QD∆Pmid PThe mid-point formula formeasuring price elasticity of supply
  44. 44. Supply curves with different price elasticity of supplySupply curves with different price elasticity of supplyPQOP0Q0S1
  45. 45. Supply curves with different price elasticity of supplySupply curves with different price elasticity of supplyPQOP0Q0S2S1
  46. 46. Supply curves with different price elasticity of supplySupply curves with different price elasticity of supplyPQOP1P0Q0Q1S2S1
  47. 47. Supply curves with different price elasticity of supplySupply curves with different price elasticity of supplyPQOP1Q2P0Q0Q1S2S1
  48. 48. Price elasticity of supplyand timeElasticity
  49. 49. Supply in different time periodsSupply in different time periodsD1P1Q1PQOa
  50. 50. D1D2P1Q1PQOaSupply in different time periodsSupply in different time periods
  51. 51. D1D2SiP1P2Q1PQOabSupply in different time periodsSupply in different time periods
  52. 52. D1D2SiSSP1P3P2Q1 Q3PQOabcSupply in different time periodsSupply in different time periods
  53. 53. D1D2SiSSSLP1P4P3P2Q1 Q3Q4PQOabcdSupply in different time periodsSupply in different time periods
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