1. Elasticity

2. Calculating the Arc Elasticity
If Ed > 1, demand is said to be “price elastic”.
If Ed < 1, demand is said to be “price inelastic”.

3. %  of Qd
d =
%  of P
Arc price elasticity for demand Curve D: The price decreases from $10 to $8
First, start with the top of the formula
%  of Qd (which means)
(90 – 80) = 10
= (0.117) .12
( )/2 = 85
.12
Second, figure out the bottom formula
%  of P (which means)
Now Divide
= (0.545)
.22
(10 – 8) = 2
= (0.222) .22
(10 + 8)/2 = 9

4. %  of Qd
d =
%  of P
Arc price elasticity for demand Curve D1: The price decreases from $10 to $8
(110 – 80) = 30
= 0.32
( )/2 = 95
.32
Now Divide
= 1.45
.22
(10 – 8) = 2
= 0.22
(10 + 8)/2 = 9

5. Practice! d = What is the arc elasticity from P = 9 to P =8?
%  of Qd
d =
%  of P
What is the arc elasticity from P = 9 to P =8?
(1 – 2) = |-1| = 1
= 0.67
(1 + 2)/2 = 1.5
0.67
= 5.58
0.12
(9 – 8) = 1
= 0.12
(9 + 8)/2 = 8.5

6. Income of Elasticity of Demand
%  of Qd
d =
%  of I
If εI > 1, the good is normal and income elastic (a luxury).
If 1 > εI > 0, the good is normal but income inelastic (a necessity).
If εI < 0, the good is inferior.

7. So, now you know how to use the formula.
Apply the same concept to these other formulas.