Elasticity of demand

1. Elasticity

2. Price elasticity of demand
(the mid-point method)
Elasticity

3. Price elasticity of demand
Proportionate (or %) ∆QD
Proportionate (or %) ∆P

4. ÷
Price elasticity of demand
Proportionate (or %) ∆QD
Proportionate (or %) ∆P
∆QD
QD
∆P
P

5. ÷
Price elasticity of demand
Proportionate (or %) ∆QD
Proportionate (or %) ∆P
∆QD
QD
∆P
P
÷
∆QD
mid QD
∆P
mid P

6. Price (£)
Quantity
Price elasticity of demand
12
10
8
6
4
2
0
0 10 20 30 40 50 60 70
D
Price Quantity
12 0
10 10
8 20
6 30
4 40
2 50
0 60

7. Price (£)
Quantity
12
10
8
6
4
2
0
0 10 20 30 40 50 60 70
D
Price Quantity
12 0
10 10
8 20
6 30
4 40
2 50
0 60
a
b
Price elasticity of demand

8. Price (£)
Quantity
12
10
8
6
4
2
0
0 10 20 30 40 50 60 70
D
Price Quantity
12 0
10 10
8 20
6 30
4 40
2 50
0 60
a
b
Mid P = 9
∆P = −2
Mid QD = 15
∆QD = 10
Price elasticity of demand

9. Price (£)
Quantity
12
10
8
6
4
2
0
0 10 20 30 40 50 60 70
D
a
b
Mid P = 9
Mid QD = 15
∆P = −2
∆QD = 10
εd = ÷
∆QD
mid QD
∆P
mid P
εd = ÷
10
15
−2
9
εd = −3 (elastic)
Price elasticity of demand

10. Price (£)
Quantity
12
10
8
6
4
2
0
0 10 20 30 40 50 60 70
D
a
b
Mid QD = 45
∆QD = 10
∆P = −2
Mid P = 3
Price Quantity
12 0
10 10
8 20
6 30
4 40
2 50
0 60
Price elasticity of demand

11. Price (£)
Quantity
12
10
8
6
4
2
0
0 10 20 30 40 50 60 70
D
a
b
Mid QD = 45
∆QD = 10
εd = ÷
∆QD
mid QD
∆P
mid P
εd = ÷
10
45
−2
3
εd = −1/3 (inelastic)
∆P = −2
Mid P = 3
Price elasticity of demand

12. Price (£)
Quantity
12
10
8
6
4
2
0
0 10 20 30 40 50 60 70
D
a
b
Mid QD = 30
∆QD = 20
∆P = −4
Price Quantity
12 0
10 10
8 20
6 30
4 40
2 50
0 60Mid P = 6
c
Price elasticity of demand

13. Price (£)
Quantity
12
10
8
6
4
2
0
0 10 20 30 40 50 60 70
D
a
b
Mid QD = 30
∆QD = 20
∆P = −4
Mid P = 6
c
εd = ÷
∆QD
mid QD
∆P
mid P
εd = ÷
20
30
−4
6
εd = −1 (unit elastic)
Price elasticity of demand

14. Demand and
Consumer Expenditure
Elasticity

15. Price (£)
Quantity
Demand and Consumer Expenditure
60
50
40
30
20
10
0
0 10 20 30 40 50 60 70
D1

16. a
Price (£)
Quantity
60
50
40
30
20
10
0
0 10 20 30 40 50 60 70
£30 x 20£30 x 20
= £600= £600
Demand and Consumer Expenditure
D1

17. b
a
Price (£)
Quantity
60
50
40
30
£20 x 60 = £1,200£20 x 60 = £1,200
20
10
0
0 10 20 30 40 50 60 70
Demand and Consumer Expenditure
D1

18. Price (£)
Quantity
60
50
40
30
20
10
0
0 10 20 30 40 50 60 70
£30 x 20£30 x 20
= £600= £600
D2
Demand and Consumer Expenditure
D1
a

19. c
Price (£)
Quantity
60
50
40
30
20
10
0
0 10
£10 x 30 = £300£10 x 30 = £300
20 30 40 50 60 70
D2
Demand and Consumer Expenditure
D1
a

20. Curves with various
elasticities
Elasticity

21. Totally inelastic demand (Totally inelastic demand (PP∈∈DD = 0)= 0)
P
QO Q1
P1
D
a

22. P
QO Q1
P1
P2
D
b
a
Totally inelastic demand (Totally inelastic demand (PP∈∈DD = 0)= 0)

23. Infinitely elastic demand (Infinitely elastic demand (PP∈∈DD == ∞∞))
P
QO Q1
P1 D
a

24. P
QO Q1
P1
Q2
D
ba
Infinitely elastic demand (Infinitely elastic demand (PP∈∈DD == ∞∞))

25. Unit elastic demand (Unit elastic demand (PP∈∈DD = -1)= -1)
P
QO 40
20
D
a

26. P
QO 40
20
100
D
8
a
b
Unit elastic demand (Unit elastic demand (PP∈∈DD = -1)= -1)
As price changes, total
consumer expenditure
(i.e. firms’ revenue)
remains the same.

27. Different elasticities along different portions of a demand curveDifferent elasticities along different portions of a demand curve
P
QO
P1
Q1
a
D

28. Different elasticities along different portions of a demand curveDifferent elasticities along different portions of a demand curve
P
QO
P1
P2
Q1 Q2
a
b
D
Elastic
demand

29. Different elasticities along different portions of a demand curveDifferent elasticities along different portions of a demand curve
P
QO
P1
P2
P3
Q1 Q2
Q3
a
b
c
D
Inelastic
demand

30. Measuring elasticity
by the point method
Elasticity

31. Measuring elasticity at a pointMeasuring elasticity at a point
P
Q
0
D
r
Pεd = (1 / slope) x P/Q

32. P
Q
50
30
0 40 100
D
r
Pεd = (1 / slope) x P/Q
Measuring elasticity at a pointMeasuring elasticity at a point

33. P
Q
50
30
0 40 100
D
r
Pεd = (1 / slope) x P/Q
= −100/50 x 30/40
Measuring elasticity at a pointMeasuring elasticity at a point

34. P
Q
50
30
0 40 100
D
r
Pεd = (1 / slope) x P/Q
= −100/50 x 30/40
= −60/40
Measuring elasticity at a pointMeasuring elasticity at a point

35. P
Q
50
30
0 40 100
D
r
Pεd = (1 / slope) x P/Q
= −100/50 x 30/40
= −60/40
= −1.5
Measuring elasticity at a pointMeasuring elasticity at a point

36. Different elasticities along a straight-line demand curveDifferent elasticities along a straight-line demand curve
P
Q
Demand
0
2
4
6
8
10
0 10 20 30 40 50
n
m
l
k
Pεd = (1 / slope) x P/Q

37. Different elasticities along a straight-line demand curveDifferent elasticities along a straight-line demand curve
P
Q
Demand
0
2
4
6
8
10
0 10 20 30 40 50
n
m
l
k
Pεd = (1 / slope) x P/Q
(1 / slope) is constant
= −50/10 = −5

38. Different elasticities along a straight-line demand curveDifferent elasticities along a straight-line demand curve
P
Q
Demand
0
2
4
6
8
10
0 10 20 30 40 50
n
m
l
k
Pεd = (1 / slope) x P/Q
(1 / slope) is constant
= −50/10 = −5
But P/Q varies:
at n, P/Q = 8/10

39. Different elasticities along a straight-line demand curveDifferent elasticities along a straight-line demand curve
P
Q
Demand
0
2
4
6
8
10
0 10 20 30 40 50
n
m
l
k
Pεd = (1 / slope) x P/Q
(1 / slope) is constant
= −50/10 = −5
But P/Q varies:
at n, P/Q = 8/10
at m, P/Q = 6/20
at l, P/Q = 4/30

40. Price elasticity of supply
Elasticity

41. Proportionate (or %) ∆QD
Proportionate (or %) ∆P
The mid-point formula for
measuring price elasticity of supply

42. ÷
Proportionate (or %) ∆QD
Proportionate (or %) ∆P
∆QD
QD
∆P
P
The mid-point formula for
measuring price elasticity of supply

43. ÷
Proportionate (or %) ∆QD
Proportionate (or %) ∆P
∆QD
QD
∆P
P
÷
∆QD
mid QD
∆P
mid P
The mid-point formula for
measuring price elasticity of supply

44. Supply curves with different price elasticity of supplySupply curves with different price elasticity of supply
P
QO
P0
Q0
S1

45. Supply curves with different price elasticity of supplySupply curves with different price elasticity of supply
P
QO
P0
Q0
S2
S1

46. Supply curves with different price elasticity of supplySupply curves with different price elasticity of supply
P
QO
P1
P0
Q0
Q1
S2
S1

47. Supply curves with different price elasticity of supplySupply curves with different price elasticity of supply
P
QO
P1
Q2
P0
Q0
Q1
S2
S1

48. Price elasticity of supply
and time
Elasticity

49. Supply in different time periodsSupply in different time periods
D1
P1
Q1
P
QO
a

50. D1
D2
P1
Q1
P
QO
a
Supply in different time periodsSupply in different time periods

51. D1
D2
Si
P1
P2
Q1
P
QO
a
b
Supply in different time periodsSupply in different time periods

52. D1
D2
Si
SS
P1
P3
P2
Q1 Q3
P
QO
a
b
c
Supply in different time periodsSupply in different time periods

53. D1
D2
Si
SS
SL
P1
P4
P3
P2
Q1 Q3
Q4
P
QO
a
b
c
d
Supply in different time periodsSupply in different time periods