[Economics]Price Elasticity of Demand

Elasticity of Demand measures the percentage change in quantity over the percentage change in price, not absolute change.

Percentage change in quantity is calculated by
change in quantity / original quantity

Along a linear demand curve, change in quantity is the same given a price fall but the original quantity(分母) in smaller at higher price and larger at lower price. Therefore the percentage change in quantity of a given price fall is greater at higher price than at lower price because original quantity is smaller(分母較小).

Percentage change in price is calculated by
change in price / original price

A price drop from $10 to $9 has a price change of 10% but price drop from $5 to $4 is a 20% change

At higher price, large percentage change in quantity and small percentage change in price means that demand elasticity is large at higher price range. At lower price, smaller percentage in quantity and larger change in price means that demand elasticity is smaller at lower price range.

Along a linear demand curve, demand is infinity at quantity 0 (where demand curve cuts the price axis) and demand equals 1 at the mid-point of the demand curve. Demand is 0 when price equals 0 (where demand curve cuts the quantity axis).

The property of a hyperbola is that the ratio of the two percentage changes is always constant. The proof of this is beyond secondary level economics.