Elasticity

Price elasticity of demand and supply, and the effect on total revenue.

Elasticity measures how responsive quantity is to a change in price.

Price elasticity of demand (PED)

$\text{PED} = \frac{\%\,\Delta \text{quantity demanded}}{\%\,\Delta \text{price}}$

|\text{PED}| > 1

: elastic (responsive).

|\text{PED}| < 1

: inelastic (unresponsive).

Worked example. Price rises $10\%$ and quantity demanded falls $20\%$ : $\text{PED} = \dfrac{-20}{10} = -2$

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Price elasticity of demand (PED)

\text{PED} = \frac{\%\,\Delta \text{quantity demanded}}{\%\,\Delta \text{price}}

|\text{PED}| > 1

: elastic (responsive).

|\text{PED}| < 1

: inelastic (unresponsive).

Worked example. Price rises

10\%

and quantity demanded falls

20\%

\text{PED} = \dfrac{-20}{10} = -2