Hanan Izzah Nabilah

2516100095

Elasticity of Demand and Supply

1. Elasticity on a Linear Demand Curve
This curve use initial price and quantity as basis. There is line D, and there are point A
and point B in line D. P is condition of initial price and Q is condition of initial quantity.
There are also p and q, p is symbolized change of price and q is symbolized
change of quantity.
Suppose we want to calculate the price elasticity of demand for a price change from $5
per unit to $10 per unit which the percentage change in price is 100%. As price rises,
quantity demanded falls from 100 units to 60 units, a decline of 40 percent. Therefore, the
price elasticity of demand is 40% divided by 100%, which equals -0.4. (the minus sign
will be just ignored)
2. Two Intersecting Demand Curves
When price and quantity are identical, elasticity can be said by looking at the slopes of
the two intersecting demand curves which one is more or less elastic. The slope of the Df
curve shows that it is flatter and that of the Ds curve shows it be steeper. Both intersect at
point A so that they have identical price OP and identical quantity OQ. The flatter curve
Df has greater elasticity than the steeper curve Ds at point A.
3. Elasticity on a Nonlinear Curve
The value of e is not the same at every point on a negatively sloped straight line demand
curve. At some points e=1, at some other points e>1, and at some other points e<1.
Therefore, such a demand curve has a segment of relatively elastic demand, a segment of
relatively inelastic demand, and a segment of unitary elastic demand. To measure
elasticity in case of a non linear curve, draw a tangent at the given point (in this case is
point A).
Therefore, it would be a mistake to speculate that a steeper demand curve would be
relatively less elastic everywhere and a flatter demand curve would be relatively more
elastic always. This is because at every point on such a demand curve, the total outlay of
the buyers (p x q) would be the same, i.e., in this case, even if price (p) changes, the
buyers total expenditure on the good remains unchanged( p x q = constant ). Here, e
would be equal to one. The point can be proved mathematically also. Therefore, the
formula that can be obtained at each point on this curve:

4. Elasticity by the Exact Method

In this method, the ratio q/p is taken as the reciprocal of the slope of the line that is
tangent to point a. Thus, there is only one measure elasticity at point a. It is p/q
multiplied by q/p measured along the tangent T. There is no averaging of changes in p
and q in this measure because only one point on the curve is used.

5. Short-run and Long-run Demand Curves

DL showing the quantity that will be bought after consumers become fully adjusted to
each given price. There is short run curve through DL which shows the quantity that will
be bought when the customers are fully adjusted to each given price which that particular
short run curve intersects long run curve, so at every other point on the short-run curve
consumers are not fully adjusted to the price they face, possibly because they have an
inappropriate stock of durable goods.
For example, when consumers are fully adjusted to price p0 they are at point E0
consuming q0. Short-run variations in price then move them along the short-run demand
curve DS0. Similarly, when they are fully adjusted to price p1, they are at E1 and short-run
price variations move them along DS1. The line DS2 shows short-run variations in demand
when consumers are fully adjusted to price p2.

REFERENCES
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