![]() So, at one end of the demand curve, where we have a large percentage change in quantity demanded over a small percentage change in price, the elasticity value will be high-demand will be relatively elastic. Likewise, at the bottom of the demand curve, that one unit change when the quantity demanded is high will be small as a percentage. A change in price of, say, a dollar, is going to be much less important in percentage terms than it will be at the bottom of the demand curve. When we are at the upper end of a demand curve, where price is high and the quantity demanded is low, a small change in the quantity demanded-even by, say, one unit-is pretty big in percentage terms. Elasticity is the percentage change-which is a different calculation from the slope, and it has a different meaning. Elasticity between points B and A was 0.45 and increased to 1.47 between points G and H. The price elasticity, however, changes along the curve. So the slope is –10/200 along the entire demand curve, and it doesn’t change. For example, in Figure 2 above, for each point shown on the demand curve, price drops by $10 and the number of units demanded increases by 200. The slope is the rate of change in units along the curve, or the rise/run (change in y over the change in x). It’s a common mistake to confuse the slope of either the supply or demand curve with its elasticity. That is, when the price is higher, buyers are more sensitive to additional price increases. When price elasticity of demand is greater (as between points G and H), it means that there is a larger impact on demand as price changes. Let’s pause and think about why the elasticity is different over different parts of the demand curve. This shows us that price elasticity of demand changes at different points along a straight-line demand curve. Demand is inelastic between points A and B and elastic between points G and H. Recall that the elasticity between those two points is 0.45. The magnitude of the elasticity has increased (in absolute value) as we moved up along the demand curve from points A to B. The elasticity of demand from G to H is 1.45. This is called the midpoint method for elasticity and is represented by the following equations: To calculate elasticity, we will use the average percentage change in both quantity and price. In this section, you will get some practice computing the price elasticity of demand using the midpoint method. ![]() We have defined price elasticity of demand as the responsiveness of the quantity demanded to a change in the price. We also explained that price elasticity is defined as the percent change in quantity demanded divided by the percent change in price.
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