1. Microeconomics
Elasticity

2. ELASTICITY EQUATION BENCHMARK
Price %∆QD Inelastic | Elastic
Demand %∆P 1
MPF ∆Q x P
Q ∆P
Cross- %∆QD1 Compliments | Substitutes
Price %∆P2 0
Income %∆QD Inferior | Normal | Luxury
%∆I 0 1
Price %∆QS Inelastic | Elastic
Supply %∆P 1

5. Elasticity
A measure of how much
one economic variable
responds
to changes in
another economic variable

6. Price Elasticity of Demand

7. Price Elasticity of Demand

8. Price Elasticity of Demand
%
%

9. Price Elasticity of Demand
% QD
%

10. Price Elasticity of Demand
% QD
% P

11. Price Elasticity of Demand
% QD
% P
Percentage Change in Quantity
Demanded
Percentage Change in Price

12. Percentage Change
%

13. Percentage Change
%
New - Old
Old

14. Percentage Change
%
New - Old
Old
Ignore units in the scale

15. Price Elasticity of Demand
1. Calculate Elasticity
2. Take Absolute Value
3. Compare to benchmark of 1
Inelastic Elastic
<1 >1
1

16. $8.00
$7.00
$6.00
$5.00
Price $4.00
$3.00
$2.00
$1.00
$0
1 2 3 4 5 6 7 8 9 10
Gallons - Gasoline

17. $8.00
$7.00
$6.00
$5.00
Price $4.00
$3.00
$2.00
$1.00
$0
1 2 3 4 5 6 7 8 9 10
Gallons - Gasoline

18. $8.00
$7.00
$6.00
$5.00
Price $4.00
$3.00
$2.00
$1.00
$0
1 2 3 4 5 6 7 8 9 10
Gallons - Gasoline

19. $8.00
$7.00
$6.00
$5.00
Price $4.00
$3.00
$2.00
$1.00
$0
1 2 3 4 5 6 7 8 9 10
Gallons - Gasoline

20. $8.00
$7.00
$6.00
$5.00
Price $4.00
$3.00
$2.00
$1.00
$0
1 2 3 4 5 6 7 8 9 10
Gallons - Gasoline

21. $8.00
$7.00
%QD
%P
$6.00
$5.00
Price $4.00
$3.00
$2.00
$1.00
$0
1 2 3 4 5 6 7 8 9 10
Gallons - Gasoline

22. $8.00
$7.00
%QD
%P
$6.00
$5.00
(4-5)÷5
Price $4.00 (6-3)÷3
$3.00
$2.00
$1.00
$0
1 2 3 4 5 6 7 8 9 10
Gallons - Gasoline

23. $8.00
$7.00
%QD
%P
$6.00
$5.00
(4-5)÷5
Price $4.00 (6-3)÷3
$3.00
-.2
$2.00 1
$1.00
$0
1 2 3 4 5 6 7 8 9 10
Gallons - Gasoline

24. $8.00
$7.00
%QD
%P
$6.00
$5.00
(4-5)÷5
Price $4.00 (6-3)÷3
$3.00
-.2
$2.00 1
$1.00
.2
$0
1 2 3 4 5 6 7 8 9 10
Gallons - Gasoline

25. Price Increase
$8.00
$7.00
$6.00
$5.00
Price $4.00
$3.00
$2.00
$1.00
$0
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream

26. Price Increase
$8.00
$7.00
$6.00
$5.00
Price $4.00
$3.00
$2.00
$1.00
$0
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream

27. Price Increase
$8.00
$7.00
$6.00
$5.00
Price $4.00
$3.00
$2.00
$1.00
$0
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream

28. Price Increase
$8.00
$7.00
$6.00
$5.00
Price $4.00
$3.00
$2.00
$1.00
$0
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream

29. Price Increase
$8.00
$7.00
$6.00
$5.00
Price $4.00
$3.00
$2.00
$1.00
$0
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream

30. Price Increase
$8.00
$7.00
$6.00
$5.00
Price $4.00
$3.00
$2.00
$1.00
$0
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream

31. Price Increase
$8.00
$7.00
%QD
%P
$6.00
$5.00
Price $4.00
$3.00
$2.00
$1.00
$0
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream

32. Price Increase
$8.00
$7.00
%QD
%P
$6.00
$5.00
(3-5)÷5
Price $4.00 (4-3)÷3
$3.00
$2.00
$1.00
$0
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream

33. Price Increase
$8.00
$7.00
%QD
%P
$6.00
$5.00
(3-5)÷5
Price $4.00 (4-3)÷3
$3.00
-.4
$2.00 .33
$1.00
$0
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream

34. Price Increase
$8.00
$7.00
%QD
%P
$6.00
$5.00
(3-5)÷5
Price $4.00 (4-3)÷3
$3.00
-.4
$2.00 .33
$1.00
1.2
$0
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream

35. Price Decrease
$8.00
$7.00
$6.00
$5.00
Price $4.00
$3.00
$2.00
$1.00
$0
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream

36. Price Decrease
$8.00
$7.00
$6.00
$5.00
Price $4.00
$3.00
$2.00
$1.00
$0
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream

37. Price Decrease
$8.00
$7.00
$6.00
$5.00
Price $4.00
$3.00
$2.00
$1.00
$0
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream

38. Price Decrease
$8.00
$7.00
$6.00
$5.00
Price $4.00
$3.00
$2.00
$1.00
$0
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream

39. Price Decrease
$8.00
$7.00
$6.00
$5.00
Price $4.00
$3.00
$2.00
$1.00
$0
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream

40. Price Decrease
$8.00
$7.00
$6.00
$5.00
Price $4.00
$3.00
$2.00
$1.00
$0
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream

41. Price Decrease
$8.00
$7.00
%QD
%P
$6.00
$5.00
Price $4.00
$3.00
$2.00
$1.00
$0
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream

42. Price Decrease
$8.00
$7.00
%QD
%P
$6.00
$5.00
(5-3)÷3
Price $4.00 (3-4)÷4
$3.00
$2.00
$1.00
$0
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream

43. Price Decrease
$8.00
$7.00
%QD
%P
$6.00
$5.00
(5-3)÷3
Price $4.00 (3-4)÷4
$3.00
.66
$2.00 -.25
$1.00
$0
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream

44. Price Decrease
$8.00
$7.00
%QD
%P
$6.00
$5.00
(5-3)÷3
Price $4.00 (3-4)÷4
$3.00
.66
$2.00 -.25
$1.00
2.67
$0
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream

45. Midpoint
Formula

46. Price Increase
$8.00
$7.00
%QD
%P
$6.00
$5.00
(3-5)÷5
Price $4.00 (4-3)÷3
$3.00
-.4
$2.00 .33
$1.00
1.2
$0
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream

47. Price Decrease
$8.00
$7.00
%QD
%P
$6.00
$5.00
(5-3)÷3
Price $4.00 (3-4)÷4
$3.00
+66%
$2.00 -25%
$1.00
2.67
$0
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream

48. Midpoint Formula
Q
Q
P
P

49. Midpoint Formula
Q Delta Q
over
Q Q Bar
P
P

50. Midpoint Formula
Q Delta Q
over
Q Q Bar
P Delta P
over
P P Bar

51. Midpoint Formula
Q
Q
P
P

52. Midpoint Formula
Trick: Flip denominator and multiply
Q
Q
P
P

53. Midpoint Formula
Trick: Flip denominator and multiply
Q P
Q P

54. Midpoint Formula
Trick: Flip denominator and multiply
Q P
X =
Q P

55. Midpoint Formula
$8.00
$7.00
$6.00
$5.00
Price $4.00
$3.00
$2.00
$1.00
$0
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream

56. Midpoint Formula
$8.00
$7.00
$6.00
$5.00
Price $4.00
$3.00
$2.00
$1.00
$0
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream

57. Midpoint Formula
$8.00
$7.00
$6.00
$5.00
Price $4.00
$3.00
$2.00
$1.00
$0
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream

58. Midpoint Formula
$8.00
$7.00
$6.00
$5.00
Price $4.00
$3.00
$2.00
$1.00
$0
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream

59. Midpoint Formula
$8.00
$7.00
$6.00
$5.00
Price $4.00
$3.00
$2.00
$1.00
$0
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream

60. Midpoint Formula
$8.00
$7.00
$6.00
$5.00
Price $4.00
$3.00
$2.00
$1.00
$0
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream

61. Midpoint Formula
$8.00
Q P
$7.00 x
Q P
$6.00
$5.00
Price $4.00
$3.00
$2.00
$1.00
$0
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream

62. Midpoint Formula
$8.00
Q P
$7.00 x
Q P
$6.00
2 x 3.5
$5.00
4 1
Price $4.00
$3.00
$2.00
$1.00
$0
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream

63. Midpoint Formula
$8.00
Q P
$7.00 x
Q P
$6.00
2 x 3.5
$5.00
4 1
Price $4.00
7
$3.00
$2.00
4
$1.00
$0
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream

64. Midpoint Formula
$8.00
Q P
$7.00 x
Q P
$6.00
2 x 3.5
$5.00
4 1
Price $4.00
7
$3.00
$2.00
4
$1.00
1.75
$0
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream

65. What determines
Price Elasticity of
Demand?

66. Close Substitutes
Passage of Time
Luxuries vs. Necessities
Definition of Market
Share of Budget

67. Close Substitutes

68. Close Substitutes

69. Close Substitutes
Elastic >1

70. Close Substitutes
Elastic >1

71. Close Substitutes
Elastic >1
Inelastic <1

72. Passage of Time

73. Passage of Time
More Time
More Elastic

74. Luxuries vs. Necessities

75. Luxuries vs. Necessities
Elastic

76. Luxuries vs. Necessities
Elastic Inelastic

77. Definition of Market

78. Definition of Market
Elastic

79. Definition of Market
Elastic Inelastic

80. Definition of Market
Demand for Gasoline
in General
Elastic Inelastic

81. Definition of Market
Demand for Gasoline Demand for Gasoline
in Rexburg in General
Elastic Inelastic

82. Share of the Budget
Small Large

83. Share of the Budget
Small Large
Inelastic

84. Share of the Budget
Small Large
Inelastic Elastic

85. Price Elasticity
and
Total Revenue

86. $8.00
Total Revenue
$7.00
TR = P x Q
$6.00
$5.00
Price $4.00
$3.00
$2.00
$1.00
$0
1 2 3 4 5 6 7 8 9 10
Gallons - Gasoline

87. $8.00
Total Revenue
$7.00
TR = P x Q
$6.00
$5.00
Price $4.00
$3.00
$2.00
$1.00
$0
1 2 3 4 5 6 7 8 9 10
Gallons - Gasoline

88. $8.00
Total Revenue
$7.00
TR = P x Q
$6.00
$5.00
Price $4.00
$3.00
$2.00
$1.00
$0
1 2 3 4 5 6 7 8 9 10
Gallons - Gasoline

89. $8.00
Total Revenue
$7.00
TR = P x Q
$6.00
$3.00 x 5 = $15
$5.00
Price $4.00
$3.00
$2.00
$1.00
$0
1 2 3 4 5 6 7 8 9 10
Gallons - Gasoline

90. $8.00
Total Revenue
$7.00
TR = P x Q
$6.00
$3.00 x 5 = $15
$5.00
$6.00 x 4 = $24
Price $4.00
$3.00
$2.00
$1.00
$0
1 2 3 4 5 6 7 8 9 10
Gallons - Gasoline

91. $8.00
Total Revenue
$7.00
TR = P x Q
$6.00
$3.00 x 5 = $15
$5.00
$6.00 x 4 = $24
Price $4.00
$3.00
$2.00
Lose
$1.00
$0
1 2 3 4 5 6 7 8 9 10
Gallons - Gasoline

92. $8.00
Total Revenue
$7.00
TR = P x Q
$6.00
$3.00 x 5 = $15
$5.00
Gain $6.00 x 4 = $24
Price $4.00
$3.00
$2.00
Lose
$1.00
$0
1 2 3 4 5 6 7 8 9 10
Gallons - Gasoline

93. $8.00
Total Revenue
$7.00
TR = P x Q
$6.00
$3.00 x 5 = $15
$5.00
Gain $6.00 x 4 = $24
Price $4.00
Net Gain = $9
$3.00
$2.00
Lose
$1.00
$0
1 2 3 4 5 6 7 8 9 10
Gallons - Gasoline

94. $8.00
Total Revenue
$7.00
TR = P x Q
$6.00
$3.00 x 5 = $15
$5.00
Gain $6.00 x 4 = $24
Price $4.00
Net Gain = $9
$3.00
Inelastic (<1)
Raising prices
$2.00
Lose
$1.00
will increase
total revenue
$0
1 2 3 4 5 6 7 8 9 10
Gallons - Gasoline

95. $8.00
Total Revenue
$7.00
TR = P x Q
$6.00
$5.00
Price $4.00
$3.00
$2.00
$1.00
$0
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream

96. $8.00
Total Revenue
$7.00
TR = P x Q
$6.00
$5.00
Price $4.00
$3.00
$2.00
$1.00
$0
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream

97. $8.00
Total Revenue
$7.00
TR = P x Q
$6.00
$5.00
Price $4.00
$3.00
$2.00
$1.00
$0
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream

98. $8.00
Total Revenue
$7.00
TR = P x Q
$6.00
$3.00 x 5 = $15
$5.00
Price $4.00
$3.00
$2.00
$1.00
$0
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream

99. $8.00
Total Revenue
$7.00
TR = P x Q
$6.00
$3.00 x 5 = $15
$5.00
$4.00 x 3 = $12
Price $4.00
$3.00
$2.00
$1.00
$0
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream

100. $8.00
Total Revenue
$7.00
TR = P x Q
$6.00
$3.00 x 5 = $15
$5.00
$4.00 x 3 = $12
Price $4.00
$3.00
$2.00
Lose
$1.00
$0
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream

101. $8.00
Total Revenue
$7.00
TR = P x Q
$6.00
$3.00 x 5 = $15
$5.00
$4.00 x 3 = $12
Price $4.00
Gain
$3.00
$2.00
Lose
$1.00
$0
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream

102. $8.00
Total Revenue
$7.00
TR = P x Q
$6.00
$3.00 x 5 = $15
$5.00
$4.00 x 3 = $12
Price $4.00
Gain Net Gain = -$3
$3.00
$2.00
Lose
$1.00
$0
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream

103. $8.00
Total Revenue
$7.00
TR = P x Q
$6.00
$3.00 x 5 = $15
$5.00
$4.00 x 3 = $12
Price $4.00
Gain Net Gain = -$3
$3.00
Elastic (>1)
$2.00 Raising prices
Lose will decrease
$1.00
total revenue
$0
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream

104. Cross-Price
Elasticity of Demand

105. Cross-Price
Elasticity of Demand
% QD
% P

106. Cross-Price
Elasticity of Demand
% QD1
% P

107. Cross-Price
Elasticity of Demand
% QD1
% P2

108. Cross-Price
Elasticity of Demand
% QD1
% P2
Percentage Change in Quantity
Demanded of one good
Percentage Change in Price
of another good

109. Cross-Price
Elasticity of Demand
1. Calculate Elasticity
2. Compare to benchmark of 0
Compliments Substitutes
<0 0 >0

110. % QD1
% P2

111. % QD1
% P2 50%

112. % QD1 35%
% P2 50%

113. % QD1 35%
=.7
% P2 50%

114. % QD1 35%
=.7 >0
% P2 50%

115. % QD1 35%
=.7 >0
% P2 50%
Substitutes

116. % QD1
% P2

117. % QD1
% P2 50%

118. % QD1 -40%
% P2 50%

119. % QD1 -40%
=-.8
% P2 50%

120. % QD1 -40%
=-.8 <0
% P2 50%

121. % QD1 -40%
=-.8 <0
% P2 50%
Compliments

122. Cross-Price
Elasticity of Demand
% QD1
% P2
Compliments Substitutes
<0 0 >0

123. Income
Elasticity of Demand
Normal, Inferior, or Luxury?

124. Income
Elasticity of Demand
% QD
% I
Percentage Change in
Quantity Demanded
Percentage Change in Income

125. Income
Elasticity of Demand
1. Calculate Elasticity
2. Compare to benchmark of 0 and 1
Inferior Normal Luxury
<0 0 1 >1

126. % QD
% I

127. % QD
% I 20%

128. % QD 10%
% I 20%

129. % QD 10%
=.5
% I 20%

130. % QD 10% >0
=.5 <1
% I 20%

131. % QD 10% >0
=.5 <1
% I 20%
Normal

132. % QD
% I

133. % QD
% I 20%

134. % QD -50%
% I 20%

135. % QD -50%
=-2.5
% I 20%

136. % QD -50%
=-2.5 <0
% I 20%

137. % QD -50%
=-2.5 <0
% I 20%
Inferior

138. % QD
% I

139. % QD
% I 20%

140. % QD 100%
% I 20%

141. % QD 100%
=5
% I 20%

142. % QD 100% >1
=5
% I 20%

143. % QD 100% >1
=5
% I 20%
Luxury

144. Income
Elasticity of Demand
% QD
% I
Inferior Normal Luxury
<0 0 1 >1

145. Price Elasticity
of Supply

146. Price Elasticity of Supply
%
%

147. Price Elasticity of Supply
% QS
%

148. Price Elasticity of Supply
% QS
% P

149. Price Elasticity of Supply
% QS
% P
Percentage Change in
Quantity Supplied
Percentage Change in Price

150. Price Elasticity of Supply
1. Calculate Elasticity
2. Compare to benchmark of 1
Inelastic Elastic
<1 >1
1

151. % QS
% P

152. % QS
% P 20%

153. % QS 10%
% P 20%

154. % QS 10%
=.5
% P 20%

155. % QS 10%
=.5 <1
% P 20%

156. % QS 10%
=.5 <1
% P 20%
Inelastic

157. % QS
% P

158. % QS
% P 20%

159. % QS 40%
% P 20%

160. % QS 40%
=2
% P 20%

161. % QS 40%
=2 >1
% P 20%

162. % QS 40%
=2 >1
% P 20%
Elastic

163. Price Elasticity of Supply
% QS
% P
Inelastic Elastic
<1 1 >1

164. ELASTICITY EQUATION BENCHMARK
Price %∆QD Inelastic | Elastic
Demand %∆P 1
MPF ∆Q x P
Q ∆P
Cross- %∆QD1 Compliments | Substitutes
Price %∆P2 0
Income %∆QD Inferior | Normal | Luxury
%∆I 0 1
Price %∆QS Inelastic | Elastic
Supply %∆P 1

165. Elasticity Quiz
1. Prices increase from $5.00 to $6.00. 4. Prices increase from $10 to $15 for
Quantity demanded decreases from 100 product C. Quantity demanded for product B
units to 80 units. decreases from 40 units to 30 units
What is the price elasticity of demand? What is the cross-price elasticity of
What is the total revenue at $5.00 per unit? demand? Are these products compliments
What is the total revenue at $6.00 per unit? or substitutes?
2. If I increase prices from $20 to $25, 5. Your income increase from $10 to $15 per
quantity demanded decreases from 1,000 hour. Quantity demanded for product E
units to 900 units. Should I raise prices? decreases from 20 units to 15 units
Why?
What is the income elasticity of demand? Is
3. Prices increase from $10 to $15 for this product an inferior, normal, or luxury
product A. Quantity demanded for product B good?
increases from 500 units to 600 units
6. Your income decreases from $12 to $10
What is the cross-price elasticity of per hour. Quantity demanded for product F
demand? Are these products compliments increases from 10 units to 12 units
or substitutes?
What is the income elasticity of demand? Is
this product an inferior, normal, or luxury
good?