Price elasticity refers to the measure of how sensitive the demand for a product or service is to changes in its price. It quantifies the percentage change in demand that occurs in response to a percentage change in price. Both the demand and supply curves illustrate the correlation between price and the quantity of units wanted or supplied. Price elasticity refers to the relationship between the percentage change in the amount requested or supplied and the corresponding percentage change in price. The price elasticity of demand is calculated by dividing the percentage change in the amount requested of an item or service by the percentage change in the price. The price elasticity of supply is calculated by dividing the percentage change in quantity provided by the percentage change in price. The concept of elasticities may be conveniently classified into five main categories: perfectly elastic, elastic, perfectly inelastic, inelastic, and unitary. An elastic demand or supply refers to a situation where the elasticity is larger than one, showing a significant sensitivity to price fluctuations. An inelastic demand or supply refers to a situation where the elasticity is less than one, suggesting a limited degree of response to changes in price. Unitary elasticities demonstrate the proportionate sensitivity of either demand or supply. The terms "perfectly elastic" and "perfectly inelastic" describe the two opposite ends of the elasticity spectrum. Perfectly elastic refers to a situation where the reaction to a change in price is absolute and limitless: any change in price causes the quantity to decrease to zero. Perfectly inelastic refers to a situation where there is no alteration in quantity whatsoever in response to changes in price.

Mid-point Approach for Elasticity calculation In order to determine elasticity, economists may use the average percentage change in both quantity and price, rather than relying just on simple percentage changes. The technique being referred to is known as the Midpoint Method for Elasticity. The midpoint technique has the benefit of yielding consistent elasticity values between two price points, regardless of whether there is a price rise or reduction. This is due to the formula using the same basis for both scenarios. The midpoint approach is often known as the arc elasticity in some academic publications. Midpoint Price elasticity of demand = % Change in Quantity Demanded (Qd)/ % Change in Price (P) where, % Change in Quantity Demanded (Qd) = (New Quantity – Old Quantity)/Old Quantity % Change in Price (P) = (New Price – Old Price)/Old Price Notice that the denominators for both of these are the old quantity and price as opposed to the average price and quantity that was shown above. Using this formula is not ideal because the direction of the change in price or quantity can affect the number calculated for price elasticity.

Price Elasticity of Demand Elasticity of demand refers to the responsiveness of the quantity demanded of a product to changes in its price. The price elasticity of demand may be classified into three primary categories: elastic, unit elastic, and inelastic. To calculate the Price Elasticity of Demand (PED), we use the following equation: Price elasticity of demand = % Change in Quantity Demanded (Qd)/ % Change in Price (P) Where: % Change in Quantity Demanded (Qd) = (New Quantity – Old Quantity)/Average Quantity % Change in Price (P) = (New Price – Old Price)/Average Price PED is always provided as an absolute value, or positive value, as we are interested in its magnitude.

Price Elasticity Of Supply (PES) Price elasticity of supply (PES or Es) is an economic metric that quantifies the degree of responsiveness, or elasticity, of the amount provided of a particular commodity or service to a change in its price or cost. Elasticity is quantified numerically and defined as the ratio of the percentage change in quantity delivered to the percentage change in price. When the coefficient is less than one, the good may be classified as inelastic; when the value is larger than one, the supply can be classified as elastic. An elasticity of 0 indicates that the amount provided is constant and does not react to changes in price, indicating a stable supply. These items often lack a labour component or are not manufactured, which restricts the immediate potential for growth. A good is said to have unitary elasticity when its coefficient is precisely one. The concept of price elasticity of supply (PES) operates similarly to that of price elasticity of demand (PED). The equations used to compute PES are identical, with the only difference being that the amount given is employed instead of the quantity required. Price elasticity of supply = % Change in Quantity Supplied (Qs)/ % Change in Price (P) Where: % Change in Quantity Supplied (Qd) = (New Quantity – Old Quantity)/Average Quantity % Change in Price (P) = (New Price – Old Price)/Average Price PED is always provided as an absolute value, or positive value, as we are interested in its magnitude.