Elasticity Elasticity Elasticity refers to the

Elasticity

Elasticity • Elasticity refers to the degree of responsiveness in supply or demand in relation to changes in price. If a curve is more elastic, then small changes in price will cause large changes in quantity consumed. Graphically, elasticity can be represented by the appearance of the supply or demand curve. A more elastic curve will be horizontal. When talking about elasticity, the term "flat" refers to curves that are horizontal; a "flatter" elastic curve is closer to perfectly horizontal.

Elasticity • If a curve is inelastic, then it will take large changes in price to effect a change in quantity consumed. • a less elastic curve will tilt more vertically.

Elasticity • When talking about elasticity, the term "flat" refers to curves that are horizontal; a "flatter" elastic curve is closer to perfectly horizontal.

Example (elastic and inelactic demand) • Consider a case in the figure below where demand is very elastic, that is, when the curve is almost flat. You can see that if the price changes from $. 75 to $1, the quantity decreases by a lot (elastic demand). If demand is very inelastic, then large changes in price won't do very much to the quantity demanded. For instance, whereas a change of 25 cents reduced quantity by 6 units in the elastic curve in the figure above, in the inelastic curve below, a price jump of a full dollar reduces the demand by just 2 units. With inelastic curves, it takes a very big jump in price to change how much demand there is in the graph below.

coefficient for elasticity • Note: elasticity is always positive value (absolute value). remember to remove any minus signs when finding your final value for elasticity

Example • When ping pong balls cost $1 each, Alice is willing to buy 10 balls, and Joe is willing to sell 10 balls. When they cost $1. 50 each, Alice is willing to buy 6 balls, and Joe is willing to sell 20. • A)find Alice's price elasticity of demand • B)find Joe's price elasticity of supply

Example (answer) • let's solve for Alice's price elasticity of demand: % Change in Quantity = (6 -10)/10 = -0. 4 = -40% % Change in Price = (1. 50 -1)/1 = 0. 5 = 50% (-40%)/(50%) = -0. 8 Take the absolute value to find elasticity. Elasticity of Demand = 0. 8 Now, we use the same process to find Joe's price elasticity of supply: % Change in Quantity = (20 -10)/10 = 100% % Change in Price = (1. 50 -1)/1 = 0. 5 = 50% Elasticity of Supply = (100%)/(50%) = 2