75 Outcome: Calculating Price Elasticity

What you’ll learn to do: explain the price elasticity of demand and price elasticity of supply, and compute both using the midpoint method

Remember, elasticity measures the responsiveness of one variable to changes in another variable. In the last section we looked at price elasticity of demand, or how much a change in price affects the quantity demanded. In this section we will look at both elasticity of demand and elasticity of supply. Supply can also be elastic, since a change in price will influence the quantity supplied.

In this section you’ll also learn how to calculate elasticity, using the midpoint (or arc) method. This is the method favored by economists, since it gives very accurate results.

The specific things you’ll learn in this section include the following:

• Define price elasticity of demand
• Define price elasticity of supply
• Calculate price elasticity using the midpoint method
• Mathematically differentiate between elastic, inelastic, and unitary elasticities of demand and supply
• Explain perfect elasticity and perfect inelasticity

Learning Activities

The learning activities for this section include the following:

• Reading: Calculating Percentage Changes and Growth Rates
• Reading: Calculating Price Elasticities
• Reading: Three Categories of Elasticity
• Reading: Polar Cases of Elasticity
• Self Check: Calculating Price Elasticity