Problems Using Point Elasticity
- We may need to compute price elasticity over portion of demand curve instead of at a single point.
- The price and quantity used as base will alter price elasticity of demand.
Point Elasticity of Demand: An Example
-Assume that
- Price rises from 8$ to $10 quantity demanded falls from 6 to 4
- The percent change in price equals: $2/$8 = 25% or $2/$10 = 20%
- The percent change in quantity equals: -2/6 = -33.33% or -2/4 = -50%
Elasticity equals:
-33.33/.25 = -1.33 or -.50/.20 = -2.54
-Which one is correct out of these?