Elasticity
Chapter 4
,Price Elasticity of Demand
– When supply increases, the equilibrium price falls and
the equilibrium quantity increases
– But does the price fall by a large amount and the
quantity increase by a little? Or, does the price barely
fall and the quantity increase by a large amount?
– The answer depends on the responsiveness of the
quantity demanded to a change in price (this is the price
elasticity of demand)
Footer 2
,Price Elasticity of Demand
Lets start with an extreme
case:
Figure 4.3(a) illustrates the
case of a good that has a
perfectly inelastic demand.
The demand curve is
vertical.
3
, Price Elasticity of Demand
If the percentage change in
the quantity demanded is
infinitely large when the
price barely changes, … the
price elasticity of demand is
infinite and the good has a
perfectly elastic demand.
4
Chapter 4
,Price Elasticity of Demand
– When supply increases, the equilibrium price falls and
the equilibrium quantity increases
– But does the price fall by a large amount and the
quantity increase by a little? Or, does the price barely
fall and the quantity increase by a large amount?
– The answer depends on the responsiveness of the
quantity demanded to a change in price (this is the price
elasticity of demand)
Footer 2
,Price Elasticity of Demand
Lets start with an extreme
case:
Figure 4.3(a) illustrates the
case of a good that has a
perfectly inelastic demand.
The demand curve is
vertical.
3
, Price Elasticity of Demand
If the percentage change in
the quantity demanded is
infinitely large when the
price barely changes, … the
price elasticity of demand is
infinite and the good has a
perfectly elastic demand.
4
