Price Elasticity of Demand

1
Price Elasticity of Demand
Suppose that the price 50/game and the
quantity demanded 50 million games. Then the
price increases to 60/game and quantity demanded
falls to 30 million games
First, lets calculate how much the price
increases (in percentage terms) Raising the price
from 50 to 60 is a 20 increase in price.
Next, lets calculate how much the quantity falls
(in percentage terms) Quantity falling from 50 to
30 is a 40 decrease in quantity.
Lastly, lets calculate the price elasticity of
demand. The price elasticity of demand equals 2,
which means the quantity changes by twice as much
as price changes.
How sensitive are consumers to the price
increase. Lets calculate the price elasticity
of demand.
change in price
change in price

x 100
initial price
10
20
x 100


0.2 x 100
Price per game
The Market for Doom X
50
change in quantity
change in quantity
x 100

initial quantity
B
20
40
x 100


0.4 x 100
A
50
change in QD
Demand
Price elasticity of demand

change in P
40

20
2
Quantity (millions of games)