Point elasticity

(noun)

The measure of the change in quantity demanded to a very small change in price.

Related Terms

Examples of Point elasticity in the following topics:

  • Calculating Elasticities

    • The basic elasticity formula has shortcomings which can be minimized by using the midpoint method or calculating the point elasticity.
    • The point elasticity is the measure of the change in quantity demanded to a tiny change in price.
    • It is the limit of the arc elasticity as the distance between the two points approaches zero, and hence is defined as a single point.
    • The point elasticity can be calculated with the following formula:
    • To calculate the arc elasticity, you need to know two points on the demand curve.

  • Interpretations of Price Elasticity of Demand

    • Perfectly inelastic demand is graphed as a vertical line and indicates a price elasticity of zero at every point of the curve.
    • Since PED is measured based on percent changes in price, the nominal price and quantity mean that demand curves have different elasticities at different points along the curve.
    • In this case the PED value is the same at every point of the demand curve.
    • The PED value is the same at every point of the demand curve.
    • The price elasticity of demand for a good has different values at different points on the demand curve.

  • Measuring the Price Elasticity of Demand

    • The own-price elasticity of demand is often simply called the price elasticity.
    • The following formula is used to calculate the own-price elasticity of demand:
    • However, economists often disregard the negative sign and report the elasticity as an absolute value.
    • There are a few other important points to note about the coefficient value provided by this formula.
    • Similarly, at high prices and low quantities, PED is more elastic .

  • Consumer Choice and Utility

    • This is the elasticity at a point on the demand (point B) for a specific price ($4) and quantity (6 units).
    • The coefficient of "own" price elasticity is unique to each point on the demand function.
    • To calculate EP as the price falls from $8 to $4 (a move from point A to point B in Figure IV.A.10):
    • A useful short cut to understanding the relative elasticity along a demand function is to use the mid-point.
    • At point H (the mid-point of the demand at one half P1 and Q1) the value of EP is –1.

  • Definition of Price Elasticity of Supply

    • The state of these factors for a particular good will determine if the price elasticity of supply is elastic or inelastic in regards to a change in price.
    • Supply is "perfectly elastic."
    • An increase in price for an elastic good has a noticeable impact on consumption.
    • The elasticity of a good will be labelled as perfectly elastic, relatively elastic, unit elastic, relatively inelastic, or perfectly inelastic.
    • Differentiate between the price elasticity of demand for elastic and inelastic goods

  • Income Elasticity of Demand

    • A positive income elasticity is associated with normal goods.
    • A negative income elasticity is associated with inferior goods.
    • In all, there are five types of income elasticity of demand :
    • Zero income elasticity of demand (YED=0): A change in income has no effect on the quantity bought.
    • Income elasticity of demand measures the percentage change in quantity demanded as income changes.

  • Tax Incidence and Elasticity

    • Tax incidence or tax burden does not depend on where the revenue is collected, but on the price elasticity of demand and price elasticity of supply.
    • The key concept is that the tax incidence or tax burden does not depend on where the revenue is collected, but on the price elasticity of demand and price elasticity of supply.
    • If the consumer is elastic, the consumer is very sensitive to price.
    • Because the consumer is elastic, the quantity change is significant.
    • Explain how elasticity influences the relative tax burden between suppliers and consumers (demand).

  • Measuring the Price Elasticity of Supply

    • The price elasticity of supply is the measure of the responsiveness of the quantity supplied of a particular good to a change in price.
    • The price elasticity of supply is directly related to consumer demand.
    • The elasticity of a good provides a measure of how sensitive one variable is to changes in another variable.
    • When calculating the price elasticity of supply, economists determine whether the quantity supplied of a good is elastic or inelastic.
    • PES = infinity: Supply is perfectly elastic.

  • Profits in Long Run Pure Competition

    • Because the firm's demand function is perfectly elastic, they cannot raise their price above the market price.
    • A quick review of price elasticity suggests that market power is influenced by a firm's demand function.
    • This equality of MR and MC occurs at point at Point B in panel B.
    • The AR is greater than the AC at this point.
    • At the point of long run equilibrium in Figure VII.6 at point C, the following conditions will exist:

  • Imperfect Competition and Monopolistic Competition

    • The differentiation of output results in the demand faced by each seller being less than perfectly elastic.
    • This suggests that the demand faced by a firm in a monopolistically competitive market is likely more elastic than in a monopoly.
    • The elasticity obviously depends on the preferences and behavior of the buyers.
    • Further inefficiency is expected since the inefficient plant is operated at an output level that is less than the minimum point on the SRAC.
    • Since the demand is negatively sloped and AC is usually U-shaped, the point of tangency between AR and LRAC (normal profits) will lie to the left of the minimum cost per unit of output.