Both the demand and supply curve show the relationship between price and the number of units demanded or supplied. **Price elasticity** is the ratio between the percentage change in the quantity demanded (Qd) or supplied (Qs) and the corresponding percent change in price. The price elasticity of demand is the percentage change in the quantity *demanded* of a good or service divided by the percentage change in the price. The price elasticity of supply is the percentage change in quantity *supplied* divided by the percentage change in price.

We can usefully divide elasticities into three broad categories: elastic, inelastic, and unitary. An elastic demand or elastic supply is one in which the elasticity is greater than one, indicating a high responsiveness to changes in price. Elasticities that are less than one indicate low responsiveness to price changes and correspond to inelastic demand or inelastic supply. **Unitary elasticities** indicate proportional responsiveness of either demand or supply, as Table summarizes.

If . . . | Then . . . | And It Is Called . . . |
---|---|---|

$\text{\%changeinquantity}\text{\%changeinprice}$ | $\frac{\text{\%changeinquantity}}{\text{\%changeinprice}}1$ | Elastic |

$\text{\%changeinquantity}=\text{\%changeinprice}$ | $\frac{\text{\%changeinquantity}}{\text{\%changeinprice}}=1$ | Unitary |

$\text{\%changeinquantity}\text{\%changeinprice}$ | $\frac{\text{\%changeinquantity}}{\text{\%changeinprice}}1$ | Inelastic |

Before we delve into the details of elasticity, enjoy this article on elasticity and ticket prices at the Super Bowl.

To calculate elasticity along a demand or supply curve economists use the average percent change in both quantity and price. This is called the Midpoint Method for Elasticity, and is represented in the following equations:

$\begin{array}{ccc}\text{\% change in quantity}& =& \frac{{Q}_{2}\u2013{Q}_{1}}{\left({Q}_{2}+{Q}_{1}\right)\mathrm{/2}}\mathrm{\times 100}\\ \text{\% change in price}& =& \frac{{P}_{2}\u2013{P}_{1}}{\left({P}_{2}+{P}_{1}\right)\mathrm{/2}}\mathrm{\times 100}\end{array}$The advantage of the **Midpoint Method** is that one obtains the same elasticity between two price points whether there is a price increase or decrease. This is because the formula uses the same base (average quantity and average price) for both cases.