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# Introduction to price elasticity of demand

Learn about the price elasticity of demand, a concept measuring how sensitive quantity is to price changes. Elasticity is calculated as percent change in quantity divided by percent change in price. Elastic situations have elasticity greater than 1, while inelastic situations have elasticity less than 1. Elasticity varies along a demand curve, and different calculation methods exist.

## Want to join the conversation?

• Just a theory:

Can't you just calculate the slope of the line, and compare that slope to 1 to find out the elasticity?

(Q2 - Q1)/Q1
------------------ * 100% = Elasticity(demand)
(P2 - P1)/P1

use

Q2 - Q1
---------- = Elasticity(demand)
P2 - P1
• No, you cannot use slope to represent elasticity. Elasticity is not comparing the nominal change in quantity to the nominal change in price. Rather, it compares the magnitude of change in quantity to the magnitude of change in price. Magnitude in this case is represented by percent change.
We cannot really compare a change in the quantity of a good that someone purchases to the change in the price of the good, because quantity and price are measured in different units. It's comparing apples to dollars, for example. But percent change in quantity and percent change in price is the same units, so those can be compared.
• What if the absolute value of the price elasticity is 1?
• If the price elasticity of demand is 1, then the % change in demand will be equal to the % change in price.
• When should we use the Midpoint Formula
• The midpoint formula can be used in any case for price elasticity cases. However, as mentioned in the video, it is outside the current course. It is more accurate because you are looking at a more smaller change in price/demand, which is similar to when finding the slope of a curve using calculus. Using the formula for the coefficient of price elasticity on a PPF for specific points is easier and more intuitive, which is why it is first used.
• kinda a weird question, but does elasticity have a unit?
• It does. This can be done by doing unit analysis. The unit of the change in percentage of quantity demanded is the amount of that product (kg, cars, burgers, etc.). The unit of the change in percentage of price is the currency used, which often would be \$. However, be noted that other relative prices could be used, such as other products.

Hence, doing unit analysis, it can be concluded that the unit for elasticity is product unit/price (e.g. kg/\$).
• Hi. Why in this video do they say put the original quantity in the denominator but then in future videos they say put the average in the denominator? thanks
• In future videos it is likely that more "points" are being used. If it is just one quantity, then we would put the original quantity in the numerator; however, if you are comparing two different points, you calculate the percent change in price and put that in the numerator [This is known as the midpoint method].
Also, I noticed in your question you said the original quantity is in the denominator. This is incorrect, because for Price Elasticity of Demand, Quantity goes in the numerator, and Price goes in the denominator.
PED = %ChangeinQuantity/%ChangeinPrice
• I am a bit confused about what Sal was saying that the method that he is using to calculate price elasticity of demand will give you different results if you go from Price A to B or from Price B to A. In the video, when I calculate going from Price 8 to 9 and from quantity 4 to 2 (which is the reverse of what Sal did), I get the same answer.
E = (4-2)/2 divided by (8-9)/9 = 1 divided by -1/9 = -9. Same answer as Sal in the video.

Am I missing something?
• why does the absolute value change the answers to positive? I would have assumed they were inelastic as they were negative?
(1 vote)
• Hey Seb! If elasticity were to be negative, that would mean people would buy more of the good when the price was hiked. If that sounds wrong, that's 'cause it is. Negative elasticities don't obey the law of demand.
• At , Sal says that an elasticity lesser than one implies that the good or service in question is inelastic. So does that mean the two elasticities we calculated here — -9 and -0.25 — are both inelastic?

Does being lesser than 1 mean the number can be a positive decimal number (like 0.2, 0.8, and 0.9) as well as a negative number (-1)?