The Price Elsticity Demand at Equlibrium and intrpret it
To determine the price elasticity of demand at equilibrium, you would first need to calculate the elasticity of demand at that particular price point. The formula for price elasticity of demand is:
Price elasticity of demand = (% Change in Quantity Demanded / % Change in Price)
To calculate the percentage change in quantity demanded, you would use the formula:
% Change in Quantity Demanded = (New Quantity Demanded - Old Quantity Demanded) / Old Quantity Demanded * 100
To calculate the percentage change in price, you would use the formula:
% Change in Price = (New Price - Old Price) / Old Price * 100
Once you have calculated both percentage changes, you can substitute them into the price elasticity of demand formula to find the value.
Interpreting the price elasticity of demand at equilibrium depends on the magnitude of the price elasticity obtained. Here are some general guidelines:
1. Elastic demand: If the price elasticity of demand is greater than 1, the demand is considered elastic. This means that a small change in price leads to a relatively larger change in quantity demanded. In this case, at equilibrium, a decrease in price would result in a greater increase in quantity demanded, and vice versa.
2. Inelastic demand: If the price elasticity of demand is less than 1, the demand is considered inelastic. This implies that the quantity demanded is not very responsive to changes in price. At equilibrium, a change in price would lead to a proportionate change in quantity demanded.
3. Unitary demand: When the price elasticity of demand is exactly 1, the demand is said to be unitary elastic. This indicates that the change in price and the change in quantity demanded are proportional. At equilibrium, a change in price would lead to an equal percentage change in quantity demanded.
It's important to note that the interpretation of price elasticity of demand at equilibrium also depends on the context and market conditions.