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Saturday, 10 January 2009

Elasticity question!

I have read all about the elasticity in this website:
http://economics.about.com/cs/micfrohelp/a/priceelasticity.htm
It shows us really clearly about elasticity.
But.....as we know,for example :
PED=%change in quantity demand/%change in price
in the text:

Calculating the Percentage Change in Quantity Demanded

The formula used to calculate the percentage change in quantity demanded is:

[QDemand(NEW) - QDemand(OLD)] / QDemand(OLD)

By filling in the values we wrote down, we get:

[110 - 150] / 150 = (-40/150) = -0.2667

We note that % Change in Quantity Demanded = -0.2667 (We leave this in decimal terms. In percentage terms this would be -26.67%). Now we need to calculate the percentage change in price.

Calculating the Percentage Change in Price

Similar to before, the formula used to calculate the percentage change in price is:

[Price(NEW) - Price(OLD)] / Price(OLD)

By filling in the values we wrote down, we get:

[10 - 9] / 9 = (1/9) = 0.1111

We have both the percentage change in quantity demand and the percentage change in price, so we can calculate the price elasticity of demand.

Final Step of Calculating the Price Elasticity of Demand

We go back to our formula of:

PEoD = (% Change in Quantity Demanded)/(% Change in Price)

We can now fill in the two percentages in this equation using the figures we calculated earlier.

PEoD = (-0.2667)/(0.1111) = -2.4005

But as the formula...The PERCENTAGE of quantity demand.....so why they don't multiply by 100 because its persentage,and in the exam..if we want to calculate elasticity for example PES,so do we have to multiply by 100% quantity demand and price or we don't have to?
Thanks

2 comments:

Mr.Lex said...

Can anybody help me???...do we have to change in percentage or not??

Mr.Lex said...

please...