Dominick Salvatore Schaums Outline of Microeconomics, 4th edition Schaums Outline Series 2006

CHAP. 3] THE MEASUREMENT OF ELASTICITIES 45
EXAMPLE 9. We can find e s at points B and D geometrically from Fig. 3-6.
Fig. 3-6
At Point B,
e s ¼ DQ
DP P B
¼ GL
Q B LB LB
OL ¼ GL
OL ¼ 10,000 ffi 1:67
6000
At point D,
e s ¼ GH
OH ¼ 6000
2000 ¼ 3
To find point e s , for a curvilinear supply curve, we draw a tangent to the supply curve at the point and then proceed as above
(see Problems 3.21 and 3.22).
Glossary
Arc elasticity of demand
The coefficient of price elasticity of demand between two points on a demand curve.
Cross elasticity of demand (e xy ) The ratio of the percentage change in the amount of commodity X purchased per unit
of time to the percentage change in the price of commodity Y. If e xy . 0, X and Y are substitutes; if e xy , 0, X and Y are
complements; and if e xy ¼ 0, X and Y are nonrelated (i.e., independent).
Income elasticity of demand (e M ) The ratio of the percentage change in the amount of a commodity purchased per
unit of time to the percentage change in the consumer’s income. If e M . 0, the commodity is normal, and if e M , 0, it is
inferior; if e M . 1, it is a luxury, and if 0 , e M , 1, it is a necessity.
Point elasticity of demand
The coefficient of price elasticity of demand at a particular point on a demand curve.
Price elasticity of demand (e) The ratio of the percentage change in the quantity of a commodity demanded per unit of
time to the percentage change in the price of the commodity. If e . 1, demand is elastic; if e , 1, demand is inelastic; and if
e ¼ 1, demand is unitary elastic.
Price elasticity of supply (e s ) The ratio of the percentage change in the quantity of a commodity supplied per unit of
time to the percentage change in the price of the commodity.
Review Questions
1. If the percentage increase in the quantity of a commodity demanded is smaller than the percentage fall in its price,
the coefficient of price elasticity of demand is (a) greater than 1, (b) equal to 1, (c) smaller than 1, or (d) zero.
Ans. (c) See Section 3.1.