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Chapter 5: Q. 10 (page 130)

What is the formula for calculating elasticity?

Short Answer

Expert verified

PriceElasticityofDemand=percentchangeinquantitypercentchangeinprice.

Step by step solution

01

Step 1. Definition

Elasticity is a term used in economics to describe how the cumulative amount requested of a product or service changes as the price of that thing or service changes. If the quantity demand for a product varies more than proportionately as its price rises or lowers, it is said to be elastic.

02

Step 2. Explanation

Elasticity is a measure of responsiveness that is computed by dividing one variable's percentage change by another's percentage change.

For instance, price elasticity can be obtained by the ratio of change in quantity and change in price.

Priceelasticity=%Changeinquantity%Changeinprice

Income elasticity can be obtained by the ration of change in quantity and change in income.

Incomeelasticity=%changeinquantity%changeinincome

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Most popular questions from this chapter

If demand is inelastic, will shifts in supply have a larger effect on equilibrium price or on quantity?

If supply is inelastic, will shifts in demand have a larger effect on equilibrium price or on quantity?

What is the formula for the cross-price elasticity of demand?

A city has built a bridge over a river and it decides

to charge a toll to everyone who crosses. For one year,

the city charges a variety of different tolls and records

information on how many drivers cross the bridge. The

city thus gathers information about elasticity of demand.

If the city wishes to raise as much revenue as possible

from the tolls, where will the city decide to charge a toll:

in the inelastic portion of the demand curve, the elastic

portion of the demand curve, or the unit elastic portion?

Explain.

What is the price elasticity of demand? Can you explain it in your own words?
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