## Introduction to Elasticity

### 5.1 Price Elasticity of Demand and Price Elasticity of Supply

#### Calculating Price Elasticity of Demand

Let's calculate the elasticity between points A and B and between points G and H shown i

**Figure 5.2 ****Calculating the Price Elasticity of Demand** The price elasticity of demand is calculated as the percentage change in quantity divided by the percentage
change in price.

First, apply the formula to calculate the elasticity as price decreases from $70 at point B to $60 at point A:

Therefore, the elasticity of demand between these two points is which is 0.45, an amount smaller than one, showing that the demand is inelastic in this interval. Price elasticities of demand are
*always* negative since price and quantity demanded always move in opposite directions (on the demand curve). By convention, we always talk about elasticities as positive numbers. So mathematically, we take the absolute value of the result. We will ignore this detail from now on, while remembering to interpret elasticities as positive numbers.

This means that, along the demand curve between point B and A, if the price changes by 1%, the quantity demanded will change by 0.45%. A change in the price will result in a smaller percentage change in the quantity demanded. For example, a 10% *increase* in
the price will result in only a 4.5% *decrease* in quantity demanded. A 10% *decrease* in the price will result in only a 4.5% *increase* in the quantity demanded. Price elasticities of demand
are negative numbers indicating that the demand curve is downward sloping, but are read as absolute values. The following Work It Out feature will walk you through calculating the price elasticity of demand.