lOMoARcPSD|11700591
ECS1501 Summary Notes Learning Units 10-15
Economics (University of South Africa)
StuDocu is not sponsored or endorsed by any college or university
Downloaded by Answerdone ()
, lOMoARcPSD|11700591
10 Price elasticity of demand (ep)
Price elasticity of demand: how sensitive or responsive the quantity demanded is to
a change in the price of the good or service.
When supply increases/decreases, the price will fall/rise, the quantity demanded
will increase/decrease.
∆P → ∆Qd
Price elasticity coefficient: measure how sensitive or responsive the quantity
demanded of a good or service is to a change in the price of the good or service.
% change in quantity demanded
Price elasticity =
% change in price
%∆Qd
ep = %∆P
Formula for arch elasticity using the midpoint method:
Q2 – Q1
ep = Q1 + Q2
P2 – P1
P1 + P2
Downloaded by Answerdone ()
, lOMoARcPSD|11700591
Types of price elasticity
If percentage change in price is greater than percentage change in quantity
demanded, then price elasticity coefficient is less than 1 = inelastic demand.
Consumers are less responsive/sensitive to a change in price.
%∆P > %∆Qd → ep < 1
If percentage change in price is smaller than percentage change in quantity
demanded, then price elasticity coefficient is greater than 1 = elastic demand.
Consumers are more responsive/sensitive to a change in price.
%∆P < %∆Qd → ep > 1
If percentage change in price is equal to percentage change in quantity demanded,
the price elasticity coefficient is equal to 1 = unitary elasticity.
%∆P = %∆Qd → ep = 1
Relatively inelastic demand Relatively elastic demand Unitary elastic demand
Perfectly inelastic demand Perfectly elastic demand
Downloaded by Answerdone ()
ECS1501 Summary Notes Learning Units 10-15
Economics (University of South Africa)
StuDocu is not sponsored or endorsed by any college or university
Downloaded by Answerdone ()
, lOMoARcPSD|11700591
10 Price elasticity of demand (ep)
Price elasticity of demand: how sensitive or responsive the quantity demanded is to
a change in the price of the good or service.
When supply increases/decreases, the price will fall/rise, the quantity demanded
will increase/decrease.
∆P → ∆Qd
Price elasticity coefficient: measure how sensitive or responsive the quantity
demanded of a good or service is to a change in the price of the good or service.
% change in quantity demanded
Price elasticity =
% change in price
%∆Qd
ep = %∆P
Formula for arch elasticity using the midpoint method:
Q2 – Q1
ep = Q1 + Q2
P2 – P1
P1 + P2
Downloaded by Answerdone ()
, lOMoARcPSD|11700591
Types of price elasticity
If percentage change in price is greater than percentage change in quantity
demanded, then price elasticity coefficient is less than 1 = inelastic demand.
Consumers are less responsive/sensitive to a change in price.
%∆P > %∆Qd → ep < 1
If percentage change in price is smaller than percentage change in quantity
demanded, then price elasticity coefficient is greater than 1 = elastic demand.
Consumers are more responsive/sensitive to a change in price.
%∆P < %∆Qd → ep > 1
If percentage change in price is equal to percentage change in quantity demanded,
the price elasticity coefficient is equal to 1 = unitary elasticity.
%∆P = %∆Qd → ep = 1
Relatively inelastic demand Relatively elastic demand Unitary elastic demand
Perfectly inelastic demand Perfectly elastic demand
Downloaded by Answerdone ()
