EECM 3714
Lecture 6: Unit 6
Elasticity
Renshaw, Ch. 9, 13
22 March 2022
,OUTLINE
The elasticity defined
1. Price elasticity of supply
• Example
2. Price elasticity of demand
• Example
3. Relationship between MR and price elasticity of demand
4. Other elasticities
5. Logarithmic scales and elasticities
• Example
, ABSOLUTE, PROPORTIONATE AND PERCENTAGE CHANGES
• In economics we are more concerned with proportionate or percentage changes in a
variable than with absolute changes in that variable.
• Absolute change: Δy (measured in units of y, such as litres).
• Absolute change Δy is current level 𝑦1 minus initial level 𝑦0
Δ𝑦 1
• Proportionate change: (pure number, such as ).
𝑦0 10
• This expresses the absolute change Δy as a proportion of the initial level 𝑦0
Δ𝑦
• Percentage change : × 100 (in per cent, such as 10%)
𝑦0
• Multiply the proportionate change by 100.
• Proportionate and percentage change are so similar that they are almost interchangeab
Lecture 6: Unit 6
Elasticity
Renshaw, Ch. 9, 13
22 March 2022
,OUTLINE
The elasticity defined
1. Price elasticity of supply
• Example
2. Price elasticity of demand
• Example
3. Relationship between MR and price elasticity of demand
4. Other elasticities
5. Logarithmic scales and elasticities
• Example
, ABSOLUTE, PROPORTIONATE AND PERCENTAGE CHANGES
• In economics we are more concerned with proportionate or percentage changes in a
variable than with absolute changes in that variable.
• Absolute change: Δy (measured in units of y, such as litres).
• Absolute change Δy is current level 𝑦1 minus initial level 𝑦0
Δ𝑦 1
• Proportionate change: (pure number, such as ).
𝑦0 10
• This expresses the absolute change Δy as a proportion of the initial level 𝑦0
Δ𝑦
• Percentage change : × 100 (in per cent, such as 10%)
𝑦0
• Multiply the proportionate change by 100.
• Proportionate and percentage change are so similar that they are almost interchangeab
