Business
Point Elasticity
Point elasticity is a measure used to assess the responsiveness of quantity demanded or supplied to a change in price at a specific point on a demand or supply curve. It is calculated by taking the derivative of the demand or supply function and multiplying it by the ratio of price to quantity at the given point. This provides insight into the sensitivity of consumer or producer behavior to price changes.
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10 Key excerpts on "Point Elasticity"
eBook - PDF- Steven A. Greenlaw, Timothy Taylor, David Shapiro(Authors)
- 2017(Publication Date)
- Openstax(Publisher)
Price elasticity is the ratio between the percentage change in the quantity demanded (Qd) or supplied (Qs) and the corresponding percent change in price. The price elasticity of demand is the percentage change in the quantity demanded of a good or service divided by the percentage change in the price. The price elasticity of supply is the percentage change in quantity supplied divided by the percentage change in price. 108 Chapter 5 | Elasticity This OpenStax book is available for free at http://cnx.org/content/col12122/1.4 We can usefully divide elasticities into three broad categories: elastic, inelastic, and unitary. An elastic demand or elastic supply is one in which the elasticity is greater than one, indicating a high responsiveness to changes in price. Elasticities that are less than one indicate low responsiveness to price changes and correspond to inelastic demand or inelastic supply. Unitary elasticities indicate proportional responsiveness of either demand or supply, as Table 5.1 summarizes. If . . . Then . . . And It Is Called . . . % change in quantity > % change in price % change in quantity % change in price > 1 Elastic % change in quantity = % change in price % change in quantity % change in price = 1 Unitary % change in quantity < % change in price % change in quantity % change in price < 1 Inelastic Table 5.1 Elastic, Inelastic, and Unitary: Three Cases of Elasticity Before we delve into the details of elasticity, enjoy this article (http://openstaxcollege.org/l/Super_Bowl) on elasticity and ticket prices at the Super Bowl. To calculate elasticity along a demand or supply curve economists use the average percent change in both quantity and price.
eBook - PDF- Steven A. Greenlaw, Timothy Taylor, David Shapiro(Authors)
- 2017(Publication Date)
- Openstax(Publisher)
Price elasticity is the ratio between the percentage change in the quantity demanded (Qd) or supplied (Qs) and the corresponding percent change in price. The price elasticity of demand is the percentage change in the quantity demanded of a good or service divided by the percentage change in the price. The price elasticity of supply is the percentage change in quantity supplied divided by the percentage change in price. 108 Chapter 5 | Elasticity This OpenStax book is available for free at http://cnx.org/content/col12190/1.4 We can usefully divide elasticities into three broad categories: elastic, inelastic, and unitary. An elastic demand or elastic supply is one in which the elasticity is greater than one, indicating a high responsiveness to changes in price. Elasticities that are less than one indicate low responsiveness to price changes and correspond to inelastic demand or inelastic supply. Unitary elasticities indicate proportional responsiveness of either demand or supply, as Table 5.1 summarizes. If . . . Then . . . And It Is Called . . . % change in quantity > % change in price % change in quantity % change in price > 1 Elastic % change in quantity = % change in price % change in quantity % change in price = 1 Unitary % change in quantity < % change in price % change in quantity % change in price < 1 Inelastic Table 5.1 Elastic, Inelastic, and Unitary: Three Cases of Elasticity Before we delve into the details of elasticity, enjoy this article (http://openstaxcollege.org/l/Super_Bowl) on elasticity and ticket prices at the Super Bowl. To calculate elasticity along a demand or supply curve economists use the average percent change in both quantity and price.
eBook - PDF- Steven A. Greenlaw, Timothy Taylor, David Shapiro(Authors)
- 2017(Publication Date)
- Openstax(Publisher)
Price elasticity is the ratio between the percentage change in the quantity demanded (Qd) or supplied (Qs) and the corresponding percent change in price. The price elasticity of demand is the percentage change in the quantity demanded of a good or service divided by the percentage change in the price. The price elasticity of supply is the percentage change in quantity supplied divided by the percentage change in price. 108 Chapter 5 | Elasticity This OpenStax book is available for free at http://cnx.org/content/col12170/1.7 We can usefully divide elasticities into three broad categories: elastic, inelastic, and unitary. An elastic demand or elastic supply is one in which the elasticity is greater than one, indicating a high responsiveness to changes in price. Elasticities that are less than one indicate low responsiveness to price changes and correspond to inelastic demand or inelastic supply. Unitary elasticities indicate proportional responsiveness of either demand or supply, as Table 5.1 summarizes. If . . . Then . . . And It Is Called . . . % change in quantity > % change in price % change in quantity % change in price > 1 Elastic % change in quantity = % change in price % change in quantity % change in price = 1 Unitary % change in quantity < % change in price % change in quantity % change in price < 1 Inelastic Table 5.1 Elastic, Inelastic, and Unitary: Three Cases of Elasticity Before we delve into the details of elasticity, enjoy this article (http://openstaxcollege.org/l/Super_Bowl) on elasticity and ticket prices at the Super Bowl. To calculate elasticity along a demand or supply curve economists use the average percent change in both quantity and price.
eBook - PDF- Steven A. Greenlaw, Timothy Taylor(Authors)
- 2015(Publication Date)
- Openstax(Publisher)
The cross-price elasticity of demand is the percentage change in the quantity demanded of a good divided by the percentage change in the price of another good. Elasticity applies in labor markets and financial capital markets just as it does in markets for goods and services. The wage elasticity of labor supply is the percentage change in the quantity of hours supplied divided by the percentage change in the wage. The elasticity of savings with respect to interest rates is the percentage change in the quantity of savings divided by the percentage change in interest rates. SELF-CHECK QUESTIONS 1. From the data shown in Table 5.5 about demand for smart phones, calculate the price elasticity of demand from: point B to point C, point D to point E, and point G to point H. Classify the elasticity at each point as elastic, inelastic, or unit elastic. Points P Q A 60 3,000 B 70 2,800 C 80 2,600 D 90 2,400 E 100 2,200 Table 5.5 Chapter 5 | Elasticity 123 Points P Q F 110 2,000 G 120 1,800 H 130 1,600 Table 5.5 2. From the data shown in Table 5.6 about supply of alarm clocks, calculate the price elasticity of supply from: point J to point K, point L to point M, and point N to point P. Classify the elasticity at each point as elastic, inelastic, or unit elastic. Point Price Quantity Supplied J $8 50 K $9 70 L $10 80 M $11 88 N $12 95 P $13 100 Table 5.6 3. Why is the demand curve with constant unitary elasticity concave? 4. Why is the supply curve with constant unitary elasticity a straight line? 5. The federal government decides to require that automobile manufacturers install new anti-pollution equipment that costs $2,000 per car. Under what conditions can carmakers pass almost all of this cost along to car buyers? Under what conditions can carmakers pass very little of this cost along to car buyers? 6. Suppose you are in charge of sales at a pharmaceutical company, and your firm has a new drug that causes bald men to grow hair.
No longer available |Learn more- (Author)
- 2014(Publication Date)
- College Publishing House(Publisher)
First, the PED for a good is not necessarily constant; as explained below, PED can vary at different points along the demand curve, due to its percentage nature. Elasticity is not the same thing as the slope of the demand curve, which is dependent on the units used for both price and quantity. Second, percentage changes are not symmetric; instead, the percentage change between any two values depends on which one is chosen as the starting value and which as the ending value. For example, if quantity demanded increases from 10 units to 15 units, the percentage change is 50%, i.e., (15 − 10) ÷ 10 (converted to a percentage). But if quantity demanded decreases from 15 units to 10 units, the percentage change is −33.3%, i.e., (15 − 10) ÷ 15. Two alternative elasticity measures avoid or minimise these shortcomings of the basic elasticity formula: point-price elasticity and arc elasticity . Point-price elasticity One way to avoid the accuracy problem described above is to minimise the difference between the starting and ending prices and quantities. This is the approach taken in the ____________________ WORLD TECHNOLOGIES ____________________ definition of point-price elasticity, which uses differential calculus to calculate the elasticity for an infinitesimal change in price and quantity at any given point on the demand curve: In other words, it is equal to the absolute value of the first derivative of quantity with respect to price (dQ d /dP) multiplied by the point's price (P) divided by its quantity (Q d ). In terms of partial-differential calculus, point-price elasticity of demand can be defined as follows: let be the demand of goods as a function of parameters price and wealth, and let be the demand for good . The elasticity of demand for good with respect to price p k is However, the point-price elasticity can be computed only if the formula for the demand function, Q d = f ( P ), is known so its derivative with respect to price, dQ d / dP , can be determined.
eBook - PDF- David Shapiro, Daniel MacDonald, Steven A. Greenlaw(Authors)
- 2022(Publication Date)
- Openstax(Publisher)
This issue reaches beyond governments and taxes. Every firm faces a similar issue. When a firm considers raising the sales price, it must consider how much a price increase will reduce the quantity demanded of what it sells. Conversely, when a firm puts its products on sale, it must expect (or hope) that the lower price will lead to a significantly higher quantity demanded. 5.1 Price Elasticity of Demand and Price Elasticity of Supply LEARNING OBJECTIVES By the end of this section, you will be able to: • Calculate the price elasticity of demand • Calculate the price elasticity of supply Both the demand and supply curve show the relationship between price and the number of units demanded or supplied. Price elasticity is the ratio between the percentage change in the quantity demanded (Qd) or supplied (Qs) and the corresponding percent change in price. The price elasticity of demand is the percentage 112 5 • Elasticity Access for free at openstax.org change in the quantity demanded of a good or service divided by the percentage change in the price. The price elasticity of supply is the percentage change in quantity supplied divided by the percentage change in price. We can usefully divide elasticities into three broad categories: elastic, inelastic, and unitary. Because price and quantity demanded move in opposite directions, price elasticity of demand is always a negative number. Therefore, price elasticity of demand is usually reported as its absolute value, without a negative sign. The summary in Table 5.1 is assuming absolute values for price elasticity of demand. An elastic demand or elastic supply is one in which the elasticity is greater than one, indicating a high responsiveness to changes in price. Elasticities that are less than one indicate low responsiveness to price changes and correspond to inelastic demand or inelastic supply. Unitary elasticities indicate proportional responsiveness of either demand or supply, as Table 5.1 summarizes.
eBook - PDF- William Boyes, Michael Melvin(Authors)
- 2015(Publication Date)
- Cengage Learning EMEA(Publisher)
Demand is price-elastic at the top of the curve; as you move down the curve, it becomes unit-elastic and then price-inelastic. § 20-1b • Comparing the price elasticity of demand for various products and services allows economists to see how consumers respond to price changes. In other words, it can tell us how big a difference price makes in a particular purchasing decision. § 20-1c R E C A P 1. The price elasticity of supply is the percentage change in the quantity supplied of one product divided by the percentage change in the price of that product, everything else held constant. 2. The price elasticity of supply increases as the time period under consideration increases. 3. The long run is a period of time just long enough that the quantities of all resources used can be varied. The short run is a period of time just short enough that the quantity of at least some of the resources used cannot be varied. 4. The interaction of demand and supply determines the price and quantity produced and sold; the relative size of demand and supply price elasticities determines how the market reacts to changes. 5. When demand is relatively more elastic than supply, producers cannot shift as much of a tax increase to consumers as when demand is relatively less elastic than supply. 6. How much of a tax is paid by producers or consumers is called the incidence of a tax. If producers pay a larger share, it is said that the incidence of a tax falls on producers. Similarly, if consumers pay a larger share, it is said that the incidence falls on consumers. 448 Chapter 20 Elasticity: Demand and Supply Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience.
eBook - PDF- Irvin Tucker(Author)
- 2018(Publication Date)
- Cengage Learning EMEA(Publisher)
ChAPTEr 5 • Price Elasticity of Demand 103 5–1 PRICE ELASTICITY OF DEMAND In Chapter 3, when you studied the demand curve, the focus was on the law of demand. This law states there is an inverse relationship between the price and the quantity demanded of a good or service. In this chapter, the emphasis is on measuring the relative size of changes in the price and the quantity demanded. Now we ask: By what percentage does the quantity demanded rise when the price falls by, say, 10 percent? 5–1a The Price Elasticity of Demand Midpoints Formula 1 Economists use a price elasticity of demand formula to measure the degree of consumer responsiveness, or sensitivity, to a change in price. Price elasticity of demand is the ratio of the percentage change in the quantity demanded of a product to a percentage change in its price. Price elasticity of demand explains how strongly consumers react to a change in price. Think of quantity demanded as a rubber band. Price elasticity of demand measures how “stretchy” the rubber band is when the price changes. Suppose a university’s enroll-ment drops by 20 percent because tuition rises by 10 percent. Therefore, the price elas-ticity of demand is 2 (−20 percent/+10 percent). The number 2 means that the quantity demanded (enrollment) changes 2 percent for each 1 percent change in price (tuition). Note there should be a minus sign in front of the 2 because, under the law of demand, price and quantity move in opposite directions. However, economists drop the minus sign because we know from the law of demand that quantity demanded and price are inversely related. The number 2 is an elasticity coefficient , which economists use to measure the degree of elasticity. The elasticity formula is E d uni003D.bold percentage change in quantity demanded percentage change in price where E d is the elasticity of demand coefficient. Here you must take care. There is a prob-lem using this formula .
eBook - PDFEconomics
A Contemporary Introduction
- William A. McEachern(Author)
- 2016(Publication Date)
- Cengage Learning EMEA(Publisher)
Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 94 Part 2 Introduction to the Market System be represented as Δp and the change in quantity as Δq. The formula for calculating the price elasticity of demand E D between the two points is the percentage change in quan- tity demanded divided by the percentage change in price, or E D 5 Δq 4 Δp (q1q9)/2 (p1p9)/2 Again, the same elasticity results whether going from the higher price to the lower price or the other way around. This is sometimes called the midpoint formula, because the bases for computing percentages are midway between the two points on the curve. Elasticity expresses a relationship between two amounts: the percentage change in quantity demanded and the percentage change in price. Because the focus is on the per- centage change, we don’t need to be concerned with how output or price is measured. For example, suppose the good in question is apples. It makes no difference in the elasticity formula whether we measure apples in pounds, bushels, or even tons. All that matters is the percentage change in quantity demanded. Nor does it matter whether we measure price in U.S. dollars, Mexican pesos, Zambian kwacha, or Vietnamese dong. All that matters is the percentage change in price. Finally, the law of demand states that price and quantity demanded are inversely related, so the change in price and the change in quantity demanded move in opposite directions. In the elasticity formula, the numerator and the denominator have opposite signs, leaving the price elasticity of demand with a negative sign.
eBook - PDF- David Besanko, Ronald Braeutigam(Authors)
- 2020(Publication Date)
- Wiley(Publisher)
You might think that when the price rises, so will the total revenue, but a higher price will generally reduce the quantity demanded. Thus, the “benefit” of the higher price is offset by the “cost” due to the reduction in quantity, and businesses must generally consider this trade-off when they think about raising a price. If the demand is elastic (the quantity demanded is relatively sensitive to price), the quantity reduction will outweigh the benefit of the higher price, and total revenue will fall. If the demand is inelastic (the quantity demanded is relatively insensitive to price), the quantity reduction will not be too severe, and total revenue will go up. Thus, knowledge of the price elasticity of demand can help a business predict the revenue impact of a price increase. DETERMINANTS OF THE PRICE ELASTICITY OF DEMAND Price elasticities of demand have been estimated for many products using statistical techniques. Table 2.1 presents estimates for a variety of food, liquor, and tobacco prod- ucts in the United States; Table 2.2 presents estimates of price elasticities of demand for food products in India, and Table 2.3 presents estimates for various modes of transportation. What determines these elasticities? Consider the estimated elasticity of −0.107 for cigarettes in Table 2.1, which indicates that a 10 percent increase in the total revenue Selling price times the quantity of product sold. L E A R N I N G - B Y- D O I N G E X E R C I S E 2 . 6 Elasticities along Special Demand Curves Problem (a) Suppose a constant elasticity demand curve is given by the formula Q P 200 1 2 . What is the price elasticity of demand? (b) Suppose a linear demand curve is given by the for- mula Q = 400 − 10P. What is the price elasticity of demand at P = 30? At P = 10? Solution (a) Since this is a constant elasticity demand curve, the price elasticity of demand is equal to −1/2 everywhere along the demand curve.
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