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Showing posts with label price elasticity of demand. Show all posts
Showing posts with label price elasticity of demand. Show all posts

## How to calculate point price elasticity of demand with examples

09:39
Point elasticity is the price elasticity of demand at a specific point on the demand curve instead of over a range of the demand curve. It uses the same formula as the general price elasticity of demand measure, but we can take information from the demand equation to solve for the “change in” values instead of actually calculating a change given two points.  Here is the process to find the point elasticity of demand formula:

Point Price Elasticity of Demand = (% change in Quantity)/(% change in Price)
Point Price Elasticity of Demand = (∆Q/Q)/(∆P/P)
Point Price Elasticity of Demand = (P/Q)(∆Q/∆P)

Where (∆Q/∆P) is the derivative of the demand function with respect to P.  You don’t really need to take the derivative of the demand function, just find the coefficient (the number) next to Price (P) in the demand function and that will give you the value for ∆Q/∆P because it is showing you how much Q is going to change given a 1 unit change in P. Finding the point elasticity solution is best demonstrated with examples...

## Price elasticity of demand example

10:07

Price elasticity of demand example question where you have to solve for the percent change in quantity or price instead of the elasticity measure. Imagine an elasticity question that gives you the elasticity and then asks you to calculate the percent change in either quantity or price given the percent change in the other term. For example, you are told that the price elasticity of demand for apples is -2 and that  quantity demanded of applies increases from 100 apples to 250 apples. What would the corresponding change in price have to be to accommodate this change in quantity demanded?

First we have to set up our standard price elasticity of demand formula or equation:

## How to find a cross price elasticity of demand from a demand equation

16:19

Finding the price elasticity of demand, and the cross price elasticity of demand from a demand function is something that most intermediate microeconomics will require you to know.  This idea is related to finding the point price elasticity of demand covered in a previous post.  For more information on the process you should review that post.  This posting is going to go over an example of calculate both the price elasticity of demand and the cross price elasticity of demand for two related goods from the following demand function to demonstrate how the process is done.

## Is it elastic or inelastic? Understanding the price elasticity of demand measure.

03:03

In economics you are required to understand how to calculate the price elasticity of demand.  But at the same time you need to understand the intuition behind the measure, in particular what the numbers mean and the implications behind them.

For review, you should understand what elasticity means to economists, and how to use the midpoint formula to calculate elasticity measures.  If you understand that, then you can figure out how the price elasticity of demand, and interpret it using the table below:

PEoD < -1 means that the good has an ELASTIC PEoD
PEoD = -1 means that the good has a UNIT ELASTIC PEoD
PEoD > -1 means that the good has an INELASTIC PEoD

## Calculating the price elasticity of demand using the midpoint theorem

01:42

In this question and answer we look at the following question about elasticities in economics:

Suppose that the NZ government increases the taxes on air travel and this increases the price of an airline ticket to NZ from \$200 to \$280. As a result, the demand for hotel accommodation in NZ decreases . Q1 = 10 Q2 = 6

Using the mid-point formula and the information given, calculate the final price elasticity of demand of hotel services, OR explain why it cannot be determined.

## Solving for quantity demanded using price elasticity of demand

23:32

The price elasticity of demand measure can be used for predicting consumer response to price changes.  One of the most powerful tools in economics is using knowledge of consumer behavior to predict what will happen before the change actually takes place.  The following question considers the consumer response to a price increase in gasoline.  It is always a good thing to study behavior before making a change, otherwise you could potentially not only lose customers, but also go out of business.

## Examples of price elasticity of demand

21:19
This post goes over some economic examples of the principle of price elasticity of demand.  There are three different types of elasticities for the price elasticity of demand measure.  These include elastic, inelastic, and unit elastic.

In order for a good to be elastic, the price elasticity of demand measure has to be less than -1.  Sometimes textbooks and teachers will take the absolute value of the elasticity measure.  The absolute value of a number is the distance that number is from zero.  Another way to think of the absolute value measure it to take away the negative sign if there is one.  So in the absolute value case, the price elasticity of demand measure will be greater than 1.