Price Elasticity of Demand and Price Elasticity of Supply

Self-Check Questions

From the data in Table about demand for smart phones, calculate the price elasticity of demand from: point B to point C, point D to point E, and point G to point H. Classify the elasticity at each point as elastic, inelastic, or unit elastic.

Points P Q
A 60 3,000
B 70 2,800
C 80 2,600
D 90 2,400
E 100 2,200
F 110 2,000
G 120 1,800
H 130 1,600

Hint:

From point B to point C, price rises from $70 to $80, and Qd decreases from 2,800 to 2,600. So:

% change in quantity=260028002600+2800÷2 × 100=–2002700 × 100=–7.41% change in price=807080+70÷2 × 100=1075 × 100=13.33Elasticity of Demand=–7.41%13.33%=0.56

The demand curve is inelastic in this area; that is, its elasticity value is less than one.

Answer from Point D to point E:

% change in quantity=220024002200+2400÷2 × 100=–2002300 × 100=–8.7% change in price=10090100+90÷2 × 100=1095 × 100=10.53Elasticity of Demand=–8.7% 10.53%=0.83

The demand curve is inelastic in this area; that is, its elasticity value is less than one.

Answer from Point G to point H:

% change in quantity=16001800 1700 × 100 =–2001700 × 100 =–11.76% change in price=130120 125 × 100 =10125 × 100 =8.00Elasticity of Demand=–11.76% 8.00% =–1.47

The demand curve is elastic in this interval.

From the data in Table about supply of alarm clocks, calculate the price elasticity of supply from: point J to point K, point L to point M, and point N to point P. Classify the elasticity at each point as elastic, inelastic, or unit elastic.

Point Price Quantity Supplied
J $8 50
K $9 70
L $10 80
M $11 88
N $12 95
P $13 100

Hint:

From point J to point K, price rises from $8 to $9, and quantity rises from 50 to 70. So:

% change in quantity=705070+50÷2 × 100=2060 × 100=33.33% change in price=$9$8$9+$8÷2 × 100=18.5 × 100=11.76Elasticity of Supply=33.33%11.76%=2.83

The supply curve is elastic in this area; that is, its elasticity value is greater than one.

From point L to point M, the price rises from $10 to $11, while the Qs rises from 80 to 88:

% change in quantity=888088+80÷2 × 100=884 × 100=9.52%change in price=$11$10$11+$10÷2 × 100=110.5 × 100=9.52Elasticity of Demand=9.52%9.52%=1.0

The supply curve has unitary elasticity in this area.

From point N to point P, the price rises from $12 to $13, and Qs rises from 95 to 100:

% change in quantity=10095100+95÷2×100=597.5×100=5.13% change in price=$13$12$13+$12÷2 × 100=112.5 × 100=8.0Elasticity of Supply=5.13%8.0%  =0.64

The supply curve is inelastic in this region of the supply curve.