5. Supply & Demand: Elasticities
Lecture Notes
1. Price Elasticity of Demand is how economists measure the responsiveness of
quantities demanded to changes in prices.
a. The elasticity coefficient is calculated using the midpoints formula
presented below:
1. Ed = Change in Qty ) Change in price
(Q1 + Q2)/2 (P1 + P2)/2
b. Elastic demand means that the quantities demanded respond more than
proportionately to changes in price; with elastic demand the coefficient is
more than one.
c. Inelastic demand means that the quantities demanded respond less than
proportionately to changes in price; with inelastic demand the coefficient is
less than one.
d. Unit elastic demand means that the quantity demanded respond
proportionately to change in prices; with unit elastic demand the coefficient
is exactly one.
2. Perfectly Elastic and Perfectly Inelastic Demand Curves
29
Lecture Notes
1. Price Elasticity of Demand is how economists measure the responsiveness of
quantities demanded to changes in prices.
a. The elasticity coefficient is calculated using the midpoints formula
presented below:
1. Ed = Change in Qty ) Change in price
(Q1 + Q2)/2 (P1 + P2)/2
b. Elastic demand means that the quantities demanded respond more than
proportionately to changes in price; with elastic demand the coefficient is
more than one.
c. Inelastic demand means that the quantities demanded respond less than
proportionately to changes in price; with inelastic demand the coefficient is
less than one.
d. Unit elastic demand means that the quantity demanded respond
proportionately to change in prices; with unit elastic demand the coefficient
is exactly one.
2. Perfectly Elastic and Perfectly Inelastic Demand Curves
29
