Price Elasticity of Demand

Table of Contents

Price Elasticity of Demand

Demand Curves Show How Sensitive Consumers are to Price Changes

PPT Slide

Elastic? or,

Inelastic?

Calculating Elasticity

Price Elasticity of Demand (Ed)

Calculating Ed:

Interpreting an Elasticity Estimate

Example:

Step 3:

Step 4:

Since we know that an Ed = - 1.6 means that a 1 % change in price results in a 1.6% change in quantity demanded in the opposite direction,

Step 1: Ed = % ??Q / % ? P

What would a 20% increase in the quantity demanded result in ?

Step 3:

If you have trouble with algebraic derivations of an equation then,

We now know how to mathematically determine Ed, what does it tell us about elasticity ?

?Ed? > 1 ? elastic demand (very responsive

?Ed? > 1 ? %?Q > %?P

1971 Estimates of Price Elasticity of Demand at Retail in the US

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ARE 012: Introdution to Agricultural Economics