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Elasticity Summary-Worksheet

The document outlines the concept of elasticity, detailing the steps for calculating price elasticity of demand and supply using the mid-point method. It categorizes elasticity into different types, including perfectly elastic, elastic, unit-elastic, inelastic, and perfectly inelastic, as well as income and cross-price elasticity. Additionally, it includes practice questions to reinforce understanding of elasticity in various scenarios.

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lgugeneralnatividad
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15 views2 pages

Elasticity Summary-Worksheet

The document outlines the concept of elasticity, detailing the steps for calculating price elasticity of demand and supply using the mid-point method. It categorizes elasticity into different types, including perfectly elastic, elastic, unit-elastic, inelastic, and perfectly inelastic, as well as income and cross-price elasticity. Additionally, it includes practice questions to reinforce understanding of elasticity in various scenarios.

Uploaded by

lgugeneralnatividad
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Elasticity Summary

CONCEPT: ELASTICITY SUMMARY

Steps for calculating Elasticity (mid-point):


1. Subtract the two quantities and
Price %∆𝑄𝑑
Elasticity subtract the two prices.
of Demand %∆𝑃 2. Sum the two quantities and sum
Perfectly Elastic: E = ∞ the two prices.
Elastic: E > 1 3. Divide your Quantity Sum by two.
Absolute
Unit-Elastic: E = 1
Value Divide your Price Sum by two.
Inelastic: E < 1
Perfectly Inelastic: E = 0 4. Divide your answers from Steps
Price 1 and 3. (Step 1 ÷ Step 3 for
%∆𝑄𝑠
Elasticity both quantity and price)
of Supply %∆𝑃
5. Divide your answers from Step 4
(Quantity ÷ Price)

Normal Good, Luxury


(income elastic): E > 1
Income %∆𝑄𝑑
Elasticity Normal Good, Necessity
of Demand %∆𝐼𝑛𝑐𝑜𝑚𝑒 (income inelastic): 0 < E < 1 Add Step 6:
Keep 6. Decide whether quantity and
Inferior Good: E < 0
+/- price increased/decreased (+/-)
Cross-
%∆𝑄𝑑 𝑜𝑓 𝐺𝑜𝑜𝑑 𝑋 Substitutes: Positive
Price
Complements: Negative
Elasticity %∆𝑃 𝑜𝑓 𝐺𝑜𝑜𝑑 𝑌 Zero: Unrelated
of Demand

Elasticity along a Straight Demand Curve

Unit-Elastic:
Max Revenue
Total Revenue (TR) = Price x Quantity

P↑ and TR↑ → inelastic demand


P↑ and TR↓ → elastic demand
P↑ and TR stays the same → unit-elastic demand

Page 1
Elasticity Summary

PRACTICE: A linear, downward-sloping demand curve is

a) Inelastic
b) Unit Elastic
c) Elastic
d) Inelastic at some points, and elastic at others

PRACTICE: An increase in the supply of a good will increase the total revenue producers receive if:

a) The demand curve is inelastic


b) The demand curve is elastic
c) The supply curve is inelastic
d) The supply curve is elastic

PRACTICE: A life-saving machine without any close substitutes will tend to have:

a) A small price elasticity of demand


b) A large price elasticity of demand
c) A small price elasticity of supply
d) A large price elasticity of supply

Page 2

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