This tutorial reviews the elasticity formula and how to determine if demand is elastic or inelastic. It provides instruction on calculating percentage changes in price and quantity, and how to use those percentages in the elasticity formula. The formula divides the percentage change in quantity by the percentage change in price. If the answer is above 1, demand is elastic. Examples are provided to demonstrate how to apply the formula and interpret the results. A brief quiz concludes the tutorial.

1. The purpose of this tutorial is to provide an opportunity to review elasticity of demand
which was covered during the Supply and Demand unit. There is a brief quiz at the end of
this tutorial.
1. Elasticity
Formula
2. Elastic or
Inelastic?
Elasticity Problems
Stand-Alone Instructional Resource Project
by
Jason Skeels
August 10, 2009
CEP 811

2.  The object of this tutorial is to review the
elasticity formula. Students will review the
basics of the formula and how it can be
broken down and easier for them to
understand.
Looks confusing right? Don’t worry, you’ll get it in no time!

3.  The Elasticity Formula is
designed to teach students how
to figure out if a good or service
is elastic or inelastic when prices
cause quantities to change. By
the end of the StAIR students
should be able to put the
formula to use for any good
being demanded as long as they
are given the changes in price
and quantity.

4.  When finding whether demand is elastic or inelastic,
the first step is to find the % change in quantity
demand and the % change in price.
 The formula for this is as follows:
 (Original number – New number) / Original number = %
change
 This may seem tricky but always take the first quantity/price
given and subtract the second quantity/price. Take this
answer and divide it by the original number and you will have
the % change.
 Remember you have to do this twice (once for quantity and
once for price).

5.  The price of stamps went from $.34 to $.42
and demand dropped from 1,458 to 1,211 at
the local Post #2 Quantity #1 again
Quantity
Office.
Quantity #1
 (1,458-1,211)/1,458 = .17 (this is the numerator)
Price #1 Price #2 Price#1 again
 ($.34-$.42)/$.34 = .24 ( this is the denominator)

6. 1. How can we find % change (since it is needed for the numerator and the
denominator)?
% change in quantity demanded = Elasticity
% change in price
a. (Original number x New number) / New number = % change
b. (Original number – New number) / Original number = % change
c. (Original number + New number) / New number = % change
d. (New number – Original number) / Original number = % change
Click here if you need
help!!

7. Learning the Elasticity
Formula
In order to even start
the formula you must CORRECT!
find the % change for
both the numerator and
denominator and to do You have a great start to
this you take: understanding the elasticity formula.
(Original number – New number) / Now let’s learn some more about the
Original number = % change
elasticity formula.
CLICK HERE TO MOVE ON

8. Learning the Elasticity
Formula
When trying to figure out the
elasticity formula, we must
remember that:
Sorry that is Incorrect!
Find the Original Number
Subtract the New Number
Take this final number and
divide it by the Original
Number again.
Now let’s find out why…..
This will give you the %
change.
You always want the original number (or
1st number they give you) to come
first….you then subtract the second
number they give you from the original
number…..then lastly divide that
answer by the original number.
TRY AGAIN!!

9. They started charging less at basketball games
hoping to get more fans to come. At last
weeks game they charged $4 per person and
156 people came. At this weeks game they
charged $2 per person and 171 people came
to the game. Fill in the following blanks:
(_____ - _____) / _____
____________________ = .192
(_____ - _____) / _____

10. A. (171-156)/156
= .192
($4-$2)/$4
B. (156-171)/156 = .192
($4-$2)/$4
C. ($4-$2)/$2 = .192
(156-171)/156
D. ($4-$2)/$4 = .192
(171-156)/171

11.  You seem to be doing well, move on Learning
the Elasticity Formula!

12.  Make sure quantity demanded is on the top
(numerator) and price is on the bottom
(denominator).
 Also, the first quantity and first price given go
first in the equation. These same numbers
are also the ones being divided at the end!
 Take Another Stab At It!

13.  Putting the equation together as a whole:
 We now know how to find % change for the
numerator and denominator, now we must divide
those 2 numbers together.
 By doing this, we will have the final equation and be
able to move onto whether a good is elastic or
inelastic.
Elasticity = % change in quantity demanded
% change in price

14.  We are already familiar with finding % change
in Quantity and % change in Price.
REVIEW:
(Original number – New number) / Original number = % change
 Now let’s put this formula into action with
some problems!

15.  I go to the store and Ben and Jerry’s Ice Cream
went from $4 to $5 a pint! What a rip off! The
store said last week they sold 20 pints at $4 and
only sold 14 this week at $5.
 How do we put the formula to use?
(20-14)/20 = -1.2
($4-$5)/$4
 Uh oh….one thing I forgot to mention….you
need to ignore any negative signs, keep
everything as a positive number.
 So our answer is 1.2
 Let’s try one out on your own now.

16. Meijer drops their prices on gallons of milk.
Last month they sold 150 gallons at $2.99 a
piece. This month they sold 211 gallons at
$1.88 a piece. Use the formula to find the
correct answer…….don’t forget to ignore
negatives!
Hint: Elasticity = % change in quantity demanded
% change in price

17. Do the math and choose the correct answer:
A: .756
B: 1.11
C: .69
D: 750,201

18. Learning the Elasticity
Formula
Now that you can figure
out the formula, lets CORRECT!
figure out what that
answer you got really
means! You seem to be understanding the
elasticity formula and can do it on your
1.11????????
own now.
CLICK HERE TO MOVE ON

19. Learning the Elasticity
Formula
You must follow these steps:
Take the original quantity
and subtract the new
Sorry that is Incorrect!
quantity from it.
Divide that answer by
the original quantity.
Take the original price and
subtract the new price from
Now let’s find out why…..
it.
Divide that answer by
the original price
Take these two answers you
Make sure you did the following:
get and divide the numerator
by the denominator.
(150-211)/150 = -.41 (make sure to drop the negative)
($2.99-$1.88)/$2.99 = .37
Now .41/.37 = 1.11
Go back and try it again!

20.  Starbucks recently raised the price of their
Strawberry Banana smoothie from $2.98 to
$3.59. Demand dropped from an average of
27 buyers a day to 12 buyers every day.
Which of the following is the correct answer?
A. 7.2
B. .41
C. 1.01
D. 2.75

21. Learning the Elasticity
Formula
Now that you can figure
out the formula, lets CORRECT!
figure out what that
answer you got really
means! You seem to be understanding the
2.75???????????????
elasticity formula and can do it on your
own now.
CLICK HERE TO MOVE ON

22. Learning the Elasticity
Formula
You must follow these steps:
Take the original quantity Sorry that is Incorrect!
and subtract the new
quantity from it.
Divide that answer by
the original quantity.
Take the original price and
Now let’s find out why…..
subtract the new price from
it.
Divide that answer by
the original price
You must make sure you are following these
Take these two answers you steps:
get and divide the numerator
by the denominator. (27-12)/27 = .55
($2.98-$3.59)/$2.98 = -.20 (make sure to drop the negative)
Now .55/.20 = 2.75
Try it again! You will be tested on this later!

23.  Now that we understand how to use the
formula, what does that answer (1.11 and 2.75 in
the previous problems) mean?
 Well…….
 If demand is elastic, a small change in price leads to a
large change in quantity demanded. If your final
answer is more than 1, demand is elastic.
 So in our first example, milk would elastic, meaning
because the price dropped so much more people
began to buy it and quantity demanded increased.

24.  If demand is inelastic, consumers do not care about
the change in price. A change in price means only a
small change in quantity demanded. If your final
answer is less than 1, demand is inelastic.
 Some inelastic goods are things such as gasoline,
prescription drugs, or anything with a small amount
of substitutes.
 Example Problem: (10-15)/10 = .75….inelastic
($6-$2)/6
 Whatever this product was, people were not
influenced by the large drop in price, only a few more
bought it because of the drop in price….price was not
a factor in their decision to purchase the product.

25.  When demand is unitary elastic, a change in price
is met by an equal percentage change in quantity
demanded. Elasticity of demand is exactly 1.
 Example Problem: (50-100)/50 = 1…unitary elastic
($10-$20)/$10
▪ In this problem, with the decrease in price, we saw a the
exact same percentage increase in quantity demanded.

26. (60-42)/60 = 1.2
($4-$5)/$4
Is this product:
A. Elastic
B. Inelastic
C. Unitary Elastic
D. None of the Above

27. Elastic, Inelastic, or
Unitary Elastic?
The final answer was
greater than 1 (1.2) so it CORRECT!
was elastic.
It is elastic because with the
increase in price a large amount of
people stopped buying the product,
leading to a large percentage
change in quantity demanded.
CLICK HERE TO MOVE ON

28. You must follow these steps:
If the number is greater
than 1 it is elastic (small
Sorry that is Incorrect!
change in price leads to a
large change in quantity
demanded).
If the number is less than 1
it is inelastic (a change in
price will lead to a small
TRY AGAIN!!!
change in quantity
demanded).
If the number is exactly 1
than it is unitary elastic (a
change in price is met by an
equal percentage change in
quantity demanded).

29. IF A PRODUCT IS INELASTIC WHAT DOES
THAT MEAN?
A. People may be influenced by a change in price and some will
purchase it while others will not.
B. People will be influenced by a change in price, they will not buy the
product if the price increases too much.
C. People will not be influenced by a change in price, they will buy the
product regardless of price.
D. There are a large amount of substitutes available.

30. Elastic, Inelastic, or
Unitary Elastic?
•Products that are normally
inelastic are necessities without
substitutes.
CORRECT!
•Milk
•Gasoline
•Eggs
•Diapers Good job, if a product is inelastic
•Antibiotics
they will purchase the product
regardless of a change in price.
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31. Elastic, Inelastic, or
Unitary Elastic?
•Normally inelastic products
are purchased because they are
necessities, these are things
Sorry that is Incorrect!
consumers must have!
•There are also very few if any
substitutes for these goods.
•Gasoline
Now let’s find out why…..
•Diapers
•Eggs
•Milk If a product is inelastic they will purchase
•Antibiotics
the product regardless of a change in price
(increase or decrease).
Try Again!

32. The price of a 2-liter of Mountain Dew increased
from $1.99 to $2.55 last week. The store sold 29
when it was $1.99 and only 25 when it was $2.55.
What is the elasticity of demand for this
product?
GET YOUR CALCULATOR OUT!!
A. .25
B. 1.40
C. 0.00
D. .50

33. Elastic, Inelastic, or
Unitary Elastic?
You must follow these steps:
Take the original quantity and
subtract the new quantity from it.
CORRECT!
Divide that answer by the
original quantity.
Take the original price and
subtract the new price from it.
Divide that answer by the
If you followed your steps correctly
original price
Take these two answers you get it should have looked like the
and divide the numerator by the
denominator. following:
(29-25)/29 = .14/.28 = .50
($1.99-$2.55)
CLICK HERE TO MOVE ON

34. Try Again!
Make sure to use this formula:
Click here to try again.

35. Since we now know that the answer for the
previous question was .50, what does that
make demand for the 2-liter of Mountain
Dew?
A. Elastic
B. Inelastic
C. Unitary Elastic
D. None of the Above

36. Elastic, Inelastic, or
Unitary Elastic?
Elastic = greater than 1
Inelastic = less than 1 CORRECT!
Unitary Elastic = 1 exactly
Since the number was .50 and that
is less than 1, demand is inelastic. In
this example, people will continue
to buy the 2-liters of Mountain Dew
even with the price increase.
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37. Try Again!
 Elastic = greater than 1
 Inelastic = less than 1
 Unitary Elastic = 1 exactly
Click here to try again.

38. A store raises their prices on Tropicana Orange
Juice from $2.69 for 64 oz. to $3.29. That
same store saw a drop in demand from 106 to
only 71. What is the elasticity of demand?
A. 1
B. 1.11
C. 1.5
D.2.17

39. You must follow these steps:
Take the original quantity
and subtract the new
CORRECT!
quantity from it.
Divide that answer by
the original quantity.
If you followed your steps correctly it should
Take the original price and have looked like the following:
subtract the new price from
it.
Divide that answer by
the original price
Take these two answers you (106-71)/106 = .33
get and divide the numerator = 1.5
by the denominator. ($2.69-$3.29) .22
CLICK HERE TO MOVE ON

40. Try Again!
Click here to try again.
USE THIS FORMULA!

41.  So we now know the answer is 1.5, what can
we consider the demand for this orange
juice?
A. Elastic
B. Inelastic
C. Unitary Elastic
D. None of the Above

42. Elastic, Inelastic, or
Unitary Elastic?
Elastic = greater than 1
Inelastic = less than 1 CORRECT!
Unitary Elastic = 1 exactly
Since the number was 1.5 and that
is more than 1, demand is elastic. In
this example, most people will stop
buying to buy the Tropicana Orange
Juice because of the price increase.
CLICK HERE TO MOVE ON

43. Try Again!
Click here to try again.
USE THIS TO HELP YOU!
 Elastic = greater than 1
 Inelastic = less than 1
 Unitary Elastic = 1 exactly

44.  We now know the Tropicana Orange Juice is
elastic and that people stopped buying it
because of the price increase. Which of the
following vocabulary terms best demonstrates
the idea of consumers buying another brand
instead of the Tropicana?
A. Demand
B. Supply
C. Substitutes
D. Complements

45. Substitutes
CORRECT!
Most consumers would substitute
Tropicana with another brand in this
situation!
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46. Try Again!
Click here to try again.
Think that we would purchase something
else instead of the Tropicana, what is that
other product called?

47.  If there is suddenly a huge price drop in the price
of honey from $10.54 a gallon to $8.63 a gallon
more consumers flood the market. Before there
were only 150 people who bought the honey by
the gallon, now there are 504. What is the
elasticity of demand?
A. 1.04
B. 11.67
C. -2.58
D. 13.1

48. You must follow these steps:
Take the original quantity
and subtract the new
CORRECT!
quantity from it.
Divide that answer by
the original quantity.
If you followed your steps correctly it should
Take the original price and have looked like the following:
subtract the new price from
it.
Divide that answer by
the original price
Take these two answers you (150-504)/150 = 2.36 = 13.1
get and divide the numerator
by the denominator. ($10.54-$8.63)/$10.54 .18
CLICK HERE TO MOVE ON

49. Try Again!
Click here to try again.
TRY TO USE THIS FORMULA!

50.  Since the answer to the previous question was
13.1 what does that mean? We know that it is an
extremely elastic good but what does that truly
mean?
A. More consumers purchased the good because it
fell so much in price.
B. A large amount of consumers were turned away
because of the high price.
C. People will buy it regardless of a change in price.
D. Honey tastes really good on toast with peanut
butter.

51. CORRECT!
The reason more people purchased the honey
was because the large drop in price. If it would
have only fallen a little, then things would
have probably been different. It is likely that it
would not have been as elastic! It has nothing
to do with toast and peanut butter…..
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52. Incorrect, Try Again!
Click here to try again.
Remember, more people purchased the
honey because of the large drop in it’s
price from $10.54 a gallon to $8.63.

53.  You have successfully completed the lesson
on Elasticity of Demand!
 Be prepared, you will be tested on this next
Tuesday.
 If you continue to have any questions on the
formula or whether an answer is elastic or
inelastic do not hesitate to run through this
lesson again.