1. Elasticity

2. Price elasticity of demand:
introduction

3. Market supply and demand
Price a P1 D O Q1
Quantity

4. Market supply and demandb P2
Price a P1 D O Q2 Q1
Quantity

5. Market supply and demandb P2
Price a P1 D' D O Q2 Q1
Quantity

6. Market supply and demandb P2
Price c P3 a P1 D' D O Q3 Q2 Q1
Quantity

7. Measuring price elasticity (the mid-point method)
of demand
(the mid-point method)

8. Price elasticity of demand
Proportionate (or %) DQD
Proportionate (or %) DP

9. ÷ Price elasticity of demand Proportionate (or %) DQD
Proportionate (or %) DP
DQD DP ÷ QD P

10. ÷ ÷ Price elasticity of demand Proportionate (or %) DQD
Proportionate (or %) DP
DQD DP ÷ QD P
DQD DP ÷
mid QD
mid P

11. Price elasticity of demand
Price Quantity 12 10 8 6 4 2 D 10 20 30 40 50 60 70
Quantity

12. Price elasticity of demand
Price Quantity 12 a 10 b 8 6 4 2 D 10 20 30 40 50 60 70
Quantity

13. Price elasticity of demand
Price Quantity
Mid P = 9 12 a
DP = -2 10 b 8 6
DQD = 10 4 2
Mid QD = 15 D 10 20 30 40 50 60 70
Quantity

14. Price elasticity of demand
DQD DP
Mid P = 9
ed = 12 ÷
mid QD
mid P a
DP = -2 10 10 -2
ed = ÷ b 15 9 8
ed = (elastic) 6
DQD = 10 4 2
Mid QD = 15 D 10 20 30 40 50 60 70
Quantity

15. Price elasticity of demand
Price Quantity 12 10 8 6
Mid P = 3 a 4
DP = -2 b 2
DQD = 10 D 10 20 30 40 50 60 70
Mid QD = 45
Quantity

16. Price elasticity of demand
DQD DP
ed = 12 ÷
mid QD
mid P 10 10 -2
ed = ÷ 45 3 8
ed = -1/ (inelastic) 6
Mid P = 3 a 4
DP = -2 b 2
DQD = 10 D 10 20 30 40 50 60 70
Mid QD = 45
Quantity

17. Price elasticity of demand
Price Quantity 12 10 a 8
DP = -4 c 6
Mid P = 6 b 4
DQD = 20 2 D 10 20 30 40 50 60 70
Mid QD = 30
Quantity

18. Price elasticity of demand
DQD DP
ed = 12 ÷
mid QD
mid P 20 -4 10
ed = ÷ 30 6 a 8
ed = (unit elastic)
DP = -4 c 6
Mid P = 6 b 4
DQD = 20 2 D 10 20 30 40 50 60 70
Mid QD = 30
Quantity

19. Demand and consumer expenditure
Elasticity
Demand and consumer expenditure

20. Q (millions of units per period of time)
Total expenditure
P(£) D
Q (millions of units per period of time)

21. Q (millions of units per period of time)
Total expenditure
P(£) D
Q (millions of units per period of time)

22. Total expenditure Consumers’ total expenditure = firms’ total revenue
£2 x 3m = £6m D
Q (millions of units per period of time)

23. Price elasticity of demand and consumer expenditure

24. Elastic demand between two points4 D 20
Q (millions of units per period of time)

25. Elastic demand between two points
Expenditure falls
as price rises
P(£) b 5 a 4 D 10 20
Q (millions of units per period of time)

26. Inelastic demand between two points4 D 20
Q (millions of units per period of time)

27. Inelastic demand between two points
Expenditure rises
as price rises c 8
P(£) a 4 D 15 20
Q (millions of units per period of time)

28. Demand curves with various elasticities
Elasticity
Demand curves with
various elasticities

29. Totally inelastic demand (PD = 0)Q1 Q

30. Totally inelastic demand (PD = 0)b P1 a O Q1 Q

31. Infinitely elastic demand (PD = )O Q1 Q

32. Infinitely elastic demand (PD = )b P1 D O Q1 Q2 Q

33. Unitary elastic demand (PD = –1)20 D O 40 Q

34. Unitary elastic demand (PD = –1)
As price changes, total
consumer expenditure
(i.e. firms’ revenue)
remains the same. a 20 b 8 D O 40
100 Q

35. Different elasticities along different portions of a demand curveQ1 Q

36. Different elasticities along different portions of a demand curveb P2 D O Q1 Q2 Q

37. Different elasticities along different portions of a demand curveb
Inelastic
demand P2 c P3 D O Q1 Q2 Q3 Q

38. Measuring elasticity by
the point method

39. Measuring elasticity at a point
Ped = (1 / slope) x P/Q r P D Q

40. Measuring elasticity at a point50
Ped = (1 / slope) x P/Q r 30 P D 40
100 Q

41. Measuring elasticity at a point50
Ped = (1 / slope) x P/Q
= -100/50 x 30/40 r 30 P D 40
100 Q

42. Measuring elasticity at a point50
Ped = (1 / slope) x P/Q
= -100/50 x 30/40
= -60/40 r 30 P D 40
100 Q

43. Measuring elasticity at a point50
Ped = (1 / slope) x P/Q
= -100/50 x 30/40
= -60/40
= -1.5 r 30 P D 40
100 Q

44. Different elasticities along a straight-line demand curve
Ped = (1 / slope) x P/Q n m P l
Demand k Q

45. Different elasticities along a straight-line demand curve
Ped = (1 / slope) x P/Q
(1 / slope) is constant
= -50/10 = -5 n m P l
Demand k Q

46. Different elasticities along a straight-line demand curve
Ped = (1 / slope) x P/Q
(1 / slope) is constant
= -50/10 = -5
But P/Q varies:
at n, P/Q = 8/10 n m P l
Demand k Q

47. Different elasticities along a straight-line demand curve
Ped = (1 / slope) x P/Q
(1 / slope) is constant
= -50/10 = -5
But P/Q varies:
at n, P/Q = 8/10
at m, P/Q = 6/20
at l, P/Q = 4/30 n m P l l
Demand k Q

48. Price elasticity of supply

49. Proportionate (or %) DQS Proportionate (or %) DP
The mid-point formula for
measuring price elasticity of supply
Proportionate (or %) DQS
Proportionate (or %) DP

50. Proportionate (or %) DQS Proportionate (or %) DP
The mid-point formula for
measuring price elasticity of supply
Proportionate (or %) DQS
Proportionate (or %) DP
DQS DP ÷ QS P

51. Proportionate (or %) DQS Proportionate (or %) DP
The mid-point formula for
measuring price elasticity of supply
Proportionate (or %) DQS
Proportionate (or %) DP
DQS DP ÷ QS P
DQS DP ÷
mid QS
mid P

52. Supply curves with different price elasticity of supplyQ0 Q

53. Supply curves with different price elasticity of supplyQ0 Q

54. Supply curves with different price elasticity of supplyQ0 Q1 Q

55. Supply curves with different price elasticity of supplyQ0 Q1 Q2 Q

56. Price elasticity of supply
and time

57. Supply in different time periodsa D1 O Q1 Q

58. Supply in different time periodsa D2 D1 O Q1 Q

59. Supply in different time periodsSi b P2 P1 a D2 D1 O Q1 Q

60. Supply in different time periodsSi SS b P2 c P3 P1 a D2 D1 O Q1 Q3 Q

61. Supply in different time periodsSi SS b P2 c SL P3 d P4 P1 a D2 D1 O Q1 Q3 Q4 Q