Elasticity

Index

The Total Outlays Method - 4

Total Outlays - 5

Total Outlays - 6

Total Outlays - 7

Revenue Loss - Revenue Gain - 8

Revenue Loss - Revenue Gain - 9

Inelastic Demand - 10

Inelastic Demand - 11

Elastic Demand - 12

Summary and Solutions - 13

Perfectly Elastic Demand - 14

Perfectly Inelastic Demand - 15

Arc Elasticity of Demand - 16

Calculating Elasticity of Demand - 17

Calculating Elasticity of Demand - 18

Calculating Elasticity of Demand - 19

Factors Effecting Elasticity of Demand- 20

Normal and Inferior Goods - 21

Factors Effecting Elasticity of Supply - 22

Factors Effecting Elasticity of Supply - 23

Factors Effecting Elasticity of Supply - 24

Inelastic Supply - 25

Perfectly Inelastic Supply - 26

Elastic Supply - 27

Factors Effecting Elasticity of Supply - 28

Factors Effecting Elasticity of Supply - 29

Factors Effecting Elasticity of Supply - 30

Cross Elasticity of Demand - 31

Income Elasticity of Demand - 32

Income Inelastic Goods - 33

Income Elasticity - 34

Elasticity - 7

You will note that when price changes from $5 per unit to $6, total outlays remain the same. This indicates the good has unitary elasticity (an elasticity of 1.00).

But, you notice that the percentage decrease in quantity demanded is not equal to the percentage increase in price. Confirm this yourself : price has risen from $5 to $6 : (a 20% rise) and quantity demanded has fallen from 600 to 500 units : a 17% fall.

What's happening here? The differences in percentage change highlight that the total outlays method is only an approximate measure of elasticity.