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

Formula's

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%

Therefore

-0.5 = X / 20

Therefore X (% change in QD) = 20* -0.5 = - 10

Therefore new quantity = 2,000 * 10% = 1,800

## No comments:

Post a Comment