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Elasticity of demand
Elasticity of supply
Elasticity of demand
Elasticity of demand
% ∆Q ∆Q ∆P ∆Q P P
E D
= = : = . = Q '( P ) .
% ∆P
P
Q P ∆P Q Q
Elasticity of demand
Conclusion: Price elasticity of demand always:
Elasticity of demand
Price elasticity of demand (EPD)
• /E/ > 1: Elastic demand,
• - flat demand curve P
- small change in price, large
change in quantity demanded
- Consumers are very sensitive
to the change in price
- the goods is easy to replace
Q
Elasticity of demand
Price elasticity of demand (EPD)
Elasticity of demand
Price elasticity of demand (EPD)
• /E/ = 0: Perfectly Inelastic demand P
• - Demand curve is parallel to the
vertical axis
- Change in price doesn’t affect
on quantity demanded
- Consumers are not sensitive
to the change in price
- The good is irreplaceable
Q
Elasticity of demand
Elasticity of demand
Price elasticity of demand (EPD)
/E/<1: P ↓ TR ↓
Elasticity of demand
Price elasticity of demand (EPD)
* The relationship between EPD, P and TR
/E/>1: TR ↑ when P↓
Elasticity of demand
E<1 E=1 E>1
• The relationship
between EPD, P and TR
P TR TR
P TR TR
Elasticity of demand
%∆Q P
EPDY = = Q' PY . Y
%∆PY Q
EPyD > 0 : Substitutes goods
EPyD < 0 : Complements goods
EPyD = 0 : Independent goods
Elasticity of supply
Elasticity of supply
Factors affecting on elasticity of supply:
3. All points in a demand curve has the same value of slope and
price elasticity of demand (point elasticity)