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# More on elasticity of demand

Looking a bit deeper at why elasticity changes despite having a linear demand curve. Created by Sal Khan.

## Want to join the conversation?

• I notice from this example that when the demand is elastic, the seller makes more money satisfying all of the demand at the lower price. For instance, I'd make \$32 selling four burgers at \$8 apiece but only \$18 selling two burgers at \$9 apiece. On the other hand, when demand is inelastic, then the seller makes more money satisfying all the demand at the higher price.

Is this how elasticity works in general, or is that just a weird artifact of this example? •   Yes, in general this is how elasticity works. A simple way of understanding the relationship between elasticity and demand is thinking in terms of the market for insulin. Insulin, a rather vital medicine for diabetics, has an almost perfectly INELASTIC demand curve for diabetics. That means that insulin consumers are bound and tethered to the price of insulin no matter how high suppliers set the price. Because insulin consumers have an INELASTIC Demand they must suffer the high prices while the
• I understand the concept of elasticity but i'm struggling with the numbers.
From the video I assume that elasticity is not constant along the demand curve so what does that number tell us that is actually useful?
If I have a business and wanted to know whether I should increase or decrease prices how would calculating the elasticity be useful?
Wouldn't it be better to just look at the demand curve and see if it is more vertical or horizontal to make that kind of decision? •  Lets say you sell burgers at 2\$ each and people are willing to buy 6 at this price. But if you increase the price to 3\$, meaning a 40% change in price, people will buy only 3 at this price, meaning 66% change in quantity. So 66/40 is greater than 1 and your demand for burgers is elastic.

That means if you change the price, the quantity will suffer even a greater change. Knowing the elasticity will help you predict how changing the price impact the quantity demanded (and therefore your revenues).
• Would someone more thoroughly explain to me the method which sal is using to calculate % change in price or quantity? My previous experience with percentages tells me that a change in value from 2 units to 4 units represents a 100% change in the units (demanded/supplied) because the increase is 2units, which is 100% of the initial value (2units is the initial). If I told you our sales were up 100% this quarter from the last, it would be because we have sold double the quantity of units that we did in the previous quarter. Hence my confusion. • The mathematical method Sal is using is known as Arc Elasticity of Demand. Based on conventional mathematics, you are absolutely right when it comes to calculating percentage change. The change tends to be always with respect to the initial value (before change).

However, in Economics, this mathematical method, Arc Elasticity of Demand, where the change is respect to the averaged of the initial value (before the change change) and final value (after the change) tends to be more accurate and used widely. This is because In the market, movements along the demand curve are frequent, it could be from point A to point B, but after a few months, from point B back to point A. Using the conventional math method, would give us 2 different values as the initial value (before the change) could be point A or point B. Thus to minimise such complications, economists take the averaged of point A and B, playing little attention to which (point A or B) is the initial point.
• Why is the concept of elasticity important? What's its use?
What does it tell us apart from the fact that -in this case- the lower the price, the higher the quantity demanded.
Also, same question about the curve representation of that fact; what does it "add"? • How can you compare different elasticities of demand? For example, how could you compare the elasticity of demand for burgers (2 increase for -\$1) and flowers (let's say 3 increase for -\$1)? • If the original price and quantity sold of both burgers and flowers are exactly the same then the demand of flowers will be more elastic than burgers.
The greater the elasticity of demand as compared to another good the higher is its elasticity. For example a good having an elasticity of demand of 2 is more elastic than a good having an elasticity of demand of 1.
• What is the difference between absolute elasticity of demand and the normal elasticity of demand? • Is there a chance that you could do a video on elasticity of supply and demand using partial derivatives to find the elasticity? We are covering in our microeconomics class partial derivatives and how to use them to determine the elasticity of demand and supply then figuring out how an increase in price will change the equilibrium quantity. Currently it makes no sense. • The less responsive consumers are to a change in the price of a product • If a demand or supply curve has different elasticities at each given point, what do we mean when we refer to a curve as elastic or inelastic. Wouldn't all curves just be a bundle of different elasticities?  