Price Elasticity of Demand

Price Elasticity of Demand

by K Norman

​OBJECTIVES

1. ​Define and Explain Price Elasticity of Demand

2. ​Calculate the price Elasticity of Demand

3. ​Illustrate by graphs, the degrees of Elasticity of Demand

​What is Elasticity?

​Generally, Elasticity is a measure of the responsiveness of something when something else changes. There are many different elasticities; here we’ll look at the price elasticity of demand.

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​So what is Price Elasticity of Demand?

​A Measure of the responsiveness of consumers demand to a change in price. It tells by how much demand will change when price changes.

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​The price elasticity of demand measures how consumers respond to a price change.

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​HOW IS IT CALCULATED?

​​The price elasticity of demand is the percentage change in quantity demanded of a good divided by the percentage change in the price of that same good (and you must take the absolute value of the whole thing).

**ABSOLUTE VALUE REFERS TO THE VALUE OF THE NUMBER IGNORING THE SIGN.

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​FORMULA

The first formula is for the price elasticity of demand and the second is to calculate the percentage change.

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​The absolute value just means that you express the price elasticity of demand as a positive number .

HOWEVER, YOUR CALCULATIONS FOR PED WILL ALWAYS RESULT IN A NEGATIVE NUMBER, therefore you take the absolute value when interpreting the values.

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​Watch the video on the next slide "Introduction to Price Elasticity of Demand" or copy and paste

​link to you tube: https://www.youtube.com/watch?v=5UKw4blQdsc

LEARNING CHECKPOINT

​After watching the Video on the next slide, answer the questions to see how much you understand.

Introduction to price elasticity of demand (video) | Khan Academy

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Multiple Choice

The price elasticity of demand measures

• the slope of a budget curve

• how often the price of a good changes

• the responsiveness of the quantity demanded to changes in price.

• how sensitive the quantity demanded is to changes in demand.

Multiple Choice

The price elasticity of demand equals

• the percentage change in the quantity demanded divided by the percentage change in the price.

• the change in the quantity demanded divided by the change in price.

• the percentage change in the price divided by the percentage change in the quantity demanded.

• the change in the price divided by the change in quantity demanded

Multiple Choice

A 10 percent increase in the quantity of spinach demanded results from a 20 percent decline in its price. The price elasticity of demand for spinach is

• 0.5

• 20

• 2.0

• 10

Multiple Choice

Suppose a rise in the price of peaches from $20 to $25 per bushel decreases the quantity demanded from 5 to 3 bushels. The price elasticity of demand is

• 0.5

• 100

• 2.0

• 1.6

Multiple Choice

Suppose a rise in the price of patties from $60 to $65 decreases the quantity demanded from 3 to 2. The price elasticity of demand is

• .25

• 3

• 4

• 0.4

Multiple Choice

Suppose a fall in the price of coco bread from $30 to $40 increases the quantity demanded from 2 to 1 . The price elasticity of demand is

• 1

• .5

• 2

• 1.5

​END OF LESSON.