Elasticity is an important concept in Economics. It is used throughout the A Level course and can be used in many different aspects.
These are a few suggestions for understanding Elasticity
We always put Quantity on the top. and Price or income on the bottom. If you forget, imagine a QUeen standing on top of a Poor person. This will help you remember it is Quantity / price.
Price Elasticity of Demand PED
- PED = % change in Quantity Demanded / % change in Price
Cross Elasticity of Demand XED
- XED = % change in Quantity Demanded / % change in price of other good.
Income Elasticity of Demand YED
- YED = % change in Q.D / % change in income.
Price Elasticity of Supply
- PES = % change in Q.S / % change in Price.
Question on Elasticity
If PED = - 0.5
If Price increases from 30 to 36.
If Quantity was 2,000. What is new Quantity
- 0.5 = % change in quantity demand / % change in price
% change in price = 6 (36-30) / 30 = 0.2 = 20%
-0.5 = X / 20
Therefore X (% change in QD) = 20* -0.5 = - 10
Therefore new quantity = 2,000 * 10% = 1,800