Elasticidad

Elasticity and Demand

The price elasticity of demand measures the responsiveness or sensitivity of consumers to changes in the price of a good. Price elasticity is the ratio of the percentagechange in quantity demanded to the percentage change in the price of the good. Over a specified price range, demand is said to be either elastic, unitary elastic, or inelastic according to whether theabsolute value of the price elasticity is greater than, equal to, or less than one, respectively. An extremely important relation in economic analysis relates the change in total revenue (due to a changein price) and the price elasticity of demand. If demand is elastic for a given change in price, an increase in price causes total revenue to fall. A decrease in price causes total revenue to rise ifdemand is elastic over the price range. If demand is inelastic for a given price change, an increase in price causes total revenue to rise, while a decrease in price causes total revenue to fall.Several factors affect the price elasticity of demand. The most important of these is the availability of close substitutes. The better and more numerous the substitutes for a good, the more elastic thedemand for the good. Demand elasticity is directly related to the percentage of the consumers' budgets spent on the good. Also, the longer the time period that consumers have to adjust to pricechanges, the more responsive they will be, and the more elastic is demand. Calculating price elasticity of demand can be accomplished by multiplying the slope of demand (∆Q/∆P) times the ratio of pricedivided by quantity (P/Q): %∆Q = %∆P ∆Q ∆P P Q

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Elasticity can be measured either (1) over an interval (or arc) along demand or (2) at a specific point on the demand curve depending on thelength of demand over which E is measured. If the change in price is relatively small (large), then a point (interval) measure is usually chosen. When calculating the price elasticity of demand over an...