ENGL 301 Assignment 1:3 Definitions of Elasticity
Introduction
The following definitions of “elasticity” are written to explain to the audience that does not have an economic background and to increase their understanding about the economic world. The three kinds of definitions are namely Parenthetical, Sentence and Expanded definitions.
Parenthetical Definition
Managers often look at elasticity (consumers’ responsiveness to change in another economic variable, such as price) to forecast market demand when they make pricing decisions.
Sentence Definition
Elasticity is an economic concept that calculates the percentage change in demand for a product to a percentage change in its price.
Expanded Definition
What is Elasticity?
Elasticity is a way to measure and predict the consumers’ demand to changes in an economic variable. In this expanded definition, the focus will be the price elasticity of demand. When price changes, there must be a subsequent change in demand. When managers want to increase the price of a product, they have to first find out if the product has an elastic, inelastic or unitary elastic price elasticity to determine if their pricing decision will generate more or less revenue.
What are the three kinds of Elasticity?
Economically, the three kinds of elasticity are namely elastic, inelastic and unitary elastic.
When the percentage change in quantity demanded isgreaterthan the percentage change in price, it means that the consumer good has anelasticdemand.
When the percentage change in quantity demanded issmallerthan the percentage change in price, it means that the consumer good has aninelasticdemand.
When the percentage change in quantity demanded isequalto the percentage change in price, it means that the consumer good has anunitaryelastic demand.
How to find out price elasticity from a diagram?
Figure 1. Three kinds of elasticity labeled along a demand curve. Adapted from Principles of Microeconomics(245), by L. Ritterburg & T. Tregarthen, 2011, Retrieved January 25, 2016, from
Consumer’s price elasticity can be demonstrated in a single demand curve. In the diagram, when a consumer’s preference is indicated as point A or point B, it implies the consumer has an elastic demand. However, if a consumer’s preference is labeled as point E or point F, the consumer has an inelastic demand.
How to calculate price elasticity of demand?
To obtain price elasticity of a consumer good, we divide the percentage change in demand for the good by the percentage change in its price.
How do we make use of elasticity?
For instance, when the price of water increases by 10% but the demand for water decreases by 5% only, thus water has an inelastic demand. In other words, the increase in price of water will lead to a less significant drop in sales. Therefore, managers will increase the price of water to boost revenue.
Perloff, J. (2008).Microeconomics: Theory and Applications with Calculus. California, CA: Prentice Hall
Pindyck, R. & Rubinfeld, D. (2012).Microeconomics(8th Edition). Toronto, ON: Pearson
Ritterberg, L. & Tregarthen, T. (2011).Principles of Economics. Retrieved from