Rules of Elasticity

Some tricks to remember the rules of elasticity:

So OWN PRICE ELASTICITY is (% change in Quantity Demand)/ (% change in Price)

First! Remember when calculating percentage change it is change in price or quantity divided by the average of the quantities or prices.

So when calculating change you just take the new minus the old price or quantity and to get the average you just add the two quantities and divide them by 2. Then you have the percentage change!

So skip forward a little, say you have both of your percentage changes calculated as discussed above, you divide the two, and then take their absolute value; meaning if it is negative you just drop the negative and make it positive.

How do you remember this, it’s easy:

Inelastic < 1   In- usually means something bad, right? There’s usually some sort of negativity associate with the stem in-. Like your bank has insufficient funds… that’s never good a thing. So I associate that with less than 1, because no wants to be less than 1.

Elastic is >1   This is just the opposite.

Now, to remember the graphs for perfectly elastic and inelastic:

NOTICE: The perfectly Elastic curve kinda looks like an E.

The perfectly Inelastic curve kinda looks like an I.

Perfect elasticities

 

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