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demand elasticity
Elasticity . . .

Elasticity and Its
Application

… is a measure of how much buyers and sellers respond to changes in market conditions 

… allows us to analyze supply and demand with greater precision.

Copyright © 2001 by Harcourt, Inc.
All rights reserved. Requests for permission to make copies of any part of the work should be mailed to:
Permissions Department, Harcourt College Publishers,
6277 Sea Harbor Drive, Orlando, Florida 32887-6777.

Price Elasticity of Demand elasticity of demand is the percentage change in quantity demanded given a percent change in the price.

Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc.

Determinants of
Price Elasticity of Demand

 Price

 It

is a measure of how much the quantity demanded of a good responds to a change in the price of that good.

Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc.



Necessities versus Luxuries



Availability of Close Substitutes



Definition of the Market



Time Horizon

Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc.

Determinants of
Price Elasticity of Demand

Computing the Price Elasticity of Demand

Demand tends to be more elastic :

The price elasticity of demand is computed as the percentage change in the quantity demanded divided by the percentage change in price.

 if

the good is a luxury.
 the longer the time period.
 the larger the number of close substitutes.  the more narrowly defined the market.

Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc.

Price Elasticity of Demand =

Percentage Change in Quantity Demanded
Percentage Change in Price

Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc.

1

Computing the Price Elasticity of Demand
Price elasticity of demand 

Percentage change in quatity demanded
Percentage change in price

Example: If the price of an ice cream cone increases from $2.00 to $2.20 and the amount you buy falls from
10 to 8
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