Calculating Elasticity and Percentage Changes

Glassary

elastic demand:
when the calculated elasticity of demand is greater than one, indicating a high responsiveness of quantity demanded or supplied to changes in price.

elastic supply:
when the calculated elasticity of either supply is greater than one, indicating a high responsiveness of quantity demanded or supplied to changes in price.

inelastic demand:
when the calculated elasticity of demand is less than one, indicating that a 1 percent increase in price paid by the consumer leads to less than a 1 percent change in purchases (and vice versa); this indicates a low responsiveness by consumers to price changes.

inelastic supply:
when the calculated elasticity of supply is less than one, indicating that a 1 percent increase in price paid to the firm will result in a less than 1 percent increase in production by the firm; this indicates a low responsiveness of the firm to price increases (and vice versa if prices drop).

midpoint elasticity approach:
Most accurate approach to solving for elasticity in which the percent changes in quantity demanded and price are measured relative to the average quantity demanded and price; the initial quantity demand is subtracted from the new quantity demanded; then divided by the average of the two quantities demanded; similarly, the initial price is subtracted from the new price, then divided by the average of the two prices.

point elasticity approach:
approximate method for solving for elasticity in which the percent changes are measured relative to the initial quantity demanded and price;  the initial quantity demanded is subtracted from the new quantity demanded, then divided by the initial quantity demanded; similarly, the initial price is subtracted from the new price, then divided by the initial price.

unitary elasticity:
when the calculated elasticity is equal to one indicating that a change in the price of the good or service results in a proportional change in the quantity demanded or supplied.