Unit elasticity

economic-dictionary

Unit elasticity is the economic concept used to mean a percentage change in the quantities demanded of a product of the same magnitude as the percentage change in price.

So in economics we speak of this type of unit elasticity if, for example, a 5% variation in the price of a product results in a reduction in the quantity demanded of equal value, that is, of 5%. .

Since the change reported in the quantity demanded and equal to the change verified in the price, the elasticity coefficient registers the value of 1. This means that the relationship between the variation in the quantity demanded and the price is directly proportional.

Formula for calculating unit elasticity

The formula provided below will allow us to determine if we are dealing with a type of unit elasticity.

Where:

Q0 = original quantity

Q1 = new quantity

P0 = original price

P1 = new price

It should be borne in mind that, based on the determined value, to be classified as unit elasticity, the determined coefficient of elasticity must be equal to unity.

Example of calculation with unit elasticity

For this, we are going to suppose the price of a certain product goes from 60 euros to 65 euros, causing a drop in demand from 200 million units to 180 units of it.

From the above we have to:

Q0 = 200

Q1 = 180

P0 = 60

P1 = 66

To determine the coefficient of elasticity we will use the formula presented above. Which is the following:

Step 1. The first operation is to determine the top of the formula.

This tells us that the absolute change in the quantities demanded has been 10%

Step 2. This step is to determine the bottom of the formula.

The above means that the absolute variation in the price of the product has been 10%

Step 3. Finally, in this step, we proceed to substitute the values ​​determined in step one and step two in the previous expression.

Knows can appreciate the result tells us that the value of the coefficient of elasticity is equal to one. This establishes a type of unit elasticity for the good under analysis.

Price elasticity of demand Price elasticity of supply Elastic demand Inelastic demand Cross elasticity Income elasticity of demand types of elasticity Elasticity of supply Elasticity of demand

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