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DragIT - Calculating elasticity

In the diagram below, shift the demand curve to the right by 15 units. Do this by clicking on the 'D1' label and, keeping the mouse pressed, drag it to the right. Note that the slope remains the same (i.e. -5). Once you have done this, try the questions below.

question

1

Price elasticity

What is the value of the price elasticity on demand curve D1 when the price rises from 5 to 7?

The price has risen from 5 to 7 - this is a 40% change in price. When the price rises, the quantity demanded falls from 25 to 15. This is a 40% change in quantity. The percentage change in demand divided by the percentage change in price (40%/40%) is therefore 1.Check your answer

2

Price elasticity

What is the value of the price elasticity on demand curve D2 (once dragged to its new position) when the price rises from 5 to 7?

The price has risen from 5 to 7 - this is a 40% change in price. When the price rises, the quantity demanded falls from 40 to 30. This is a 25% change in quantity. The percentage change in demand divided by the percentage change in price (25%/40%) is therefore 0.625.Check your answer