Computing the Price Elasticit of demand The price elasticity of demand is computed as the percentage change in the quantity demanded divided by the percentage change in price Percentage Change Price Elasticity of Demand= in Quantity Demanded Percentage Change in Price Harcourt, Inc. items and derived items copyright o 200l by harcourt, Inc
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. Computing the Price Elasticity of Demand The price elasticity of demand is computed as the percentage change in the quantity demanded divided by the percentage change in price. Price Elasticity of Demand = Percentage Change in Quantity Demanded Percentage Change in Price Price Elasticity of Demand = Percentage Change in Quantity Demanded Percentage Change in Price
Computing the Price Elasticit of demand Price elasticityof demand Percentage change in quatity demanded Percentage change in price Example: If the price of an ice cream cone increases from $2.00 to $2.20 and the amount you buy falls from 10 to 8 cones then your elasticity of demand would be calculated as. (10-8) 100 10 20 percent 220-2.00)×10010 percent/ 2.00 Harcourt, Inc. items and derived items copyright o 200l by harcourt, Inc
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. Computing the Price Elasticity of Demand Percentage change i n price Percentage change i nquatity demanded Price elasticityof demand = Example: If the price of an ice cream cone increases from $2.00 to $2.20 and the amount you buy falls from 10 to 8 cones then your elasticity of demand would be calculated as: 2 10 percent 20 percent 100 2 00 2 20 2 00 100 10 10 8 = = − − . ( . . ) ( )
Computing the Price Elasticity of Demand Using the Midpoint Formula The midpoint formula is preferable when calculating the price elasticity of demand because it gives the same answer regardless of the direction of the change Price Elasticity of Demand =(Q2-Q1/(Q2+Q1)/2J (P2-P1)[(P2+P1)/2] Harcourt, Inc. items and derived items copyright o 200l by harcourt, Inc
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. Computing the Price Elasticity of Demand Using the Midpoint Formula The midpoint formula is preferable when calculating the price elasticity of demand because it gives the same answer regardless of the direction of the change. (P P )/[(P P )/2] (Q Q )/[(Q Q )/2] Price Elasticity of Demand= 2 1 2 1 2 1 2 1 − + − +
Computing the Price Elasticit of demand Price Elasticity of Demand=(Q2-Q1)/[(Q2+Q1)/2 (P2-P1)P2+P12] Example: If the price of an ice cream cone increases from $2.00 to $2.20 and the amount you buy falls from 10 to 8 cones the your elasticity of demand, using the midpoint formula, would be calculated as: (10-8) 10+8)/222 percent 2.32 (2.20-2009. percent (200+220)/2 Harcourt, Inc. items and derived items copyright o 200l by harcourt, Inc
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. Computing the Price Elasticity of Demand Example: If the price of an ice cream cone increases from $2.00 to $2.20 and the amount you buy falls from 10 to 8 cones the your elasticity of demand, using the midpoint formula, would be calculated as: 2.32 9.5 22 (2.00 2.20)/ 2 (2.20 2.00) (10 8)/ 2 (10 8) = = + − + − percent percent (P P )/[(P P )/2] (Q Q )/[(Q Q )/2] Price Elasticity of Demand= 2 1 2 1 2 1 2 1 − + − +
Ranges of Elasticity Inelastic demand Quantity demanded does not respond strongly to price changes. Price elasticity of demand is less than one. Elastic demand Quantity demanded responds strongly to changes In price. Price elasticity of demand is greater than one. Harcourt, Inc. items and derived items copyright o 200l by harcourt, Inc
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. Ranges of Elasticity Inelastic Demand Quantity demanded does not respond strongly to price changes. Price elasticity of demand is less than one. Elastic Demand Quantity demanded responds strongly to changes in price. Price elasticity of demand is greater than one