%change in Price / % change in Quanitity = Elasticities?

Question

I know in economics it is the percentage change between price and quanitiy, but can you tell me an easy way to calculate it?

If you have time and knowlege, can you also address the different kinds and how to calculate them too? (income, ect )

But the basic is fine.

Answer 1

The best way to calculate elasticity is this:

% change in quantity demanded of product x
---------------------------------------------------------- (divided by)
% change in price of product x.

When the price elasticity of demand for a good is elastic (Ed > 1), the percentage change in quantity is greater than that in price. Hence, when the price is raised, the total revenue of producers falls, and vice versa.

When the price elasticity of demand for a good is inelastic (Ed < 1), the percentage change in quantity is smaller than that in price. Hence, when the price is raised, the total revenue of producers rises, and vice versa.

When the price elasticity of demand for a good is unit elastic (or unitary elastic) (Ed = 1), the percentage change in quantity is equal to that in price. Hence, when the price is raised, the total revenue remains unchanged. The demand curve is a rectangular hyperbola.

When the price elasticity of demand for a good is perfectly elastic (Ed = ?), any increase in the price, no matter how small, will cause demand for the good to drop to zero. Hence, when the price is raised, the total revenue of producers falls to zero. The demand curve is a horizontal straght line. A ten-dollar banknote is an example of a perfectly elastic good; nobody would pay $10.01, yet everyone will pay $9.99 for it.

When the price elasticity of demand for a good is perfectly inelastic (Ed = 0), changes in the price do not affect the quantity demanded for the good. The demand curve is a vertical straight line; this violates the law of demand. An example of a perfectly inelastic good is a human heart for someone who needs a transplant; nobody would buy more than the exact amount of hearts demanded, no matter how low the price is.


Hope I could help!