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Public Health

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Public Health
Elasticity and Its
Application
Chapter 5
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.

Elasticity . . .
… 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.

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

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

Determinants of
Price Elasticity of Demand
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
Demand tends to be more elastic : 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.

Computing the Price Elasticity of Demand
The price elasticity of demand is computed as the percentage change in the quantity demanded divided by the percentage change in price.
Percentage Change in Quantity Demanded
Price Elasticity of Demand =
Percentage Change in Price

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

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
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