Point elasticity

Point elasticity
Primary topic
Related topics
Methods and techniques

Point elasticity measures elasticity at a given dot on a facility. The point elasticity conception is used to mete the effect on a appurtenant variable, Y, of a very little or accessory alteration in an independent variable, X. The concept of point elasticity is used when we want to know relative price elasticity of demand at a given point on the demand curve to make some decisions about price variation. Dominick Salvatore defines point elasticity of demand as [1].:

  • The price elasticity of demand at a detail dot on the need curve.

Definition[edit]

The source of Economics for Business and Management indicates that this term “is a measure of the price elasticity of demand at a single point (i.e. single price and quantity situation) on a demand curve” . The author states that the utility of the curve is most beneficial when the curve presenting the demand level is not a straight line. Generally, the point elasticity is described as the ratio between the demanded number of goods and the price modification expressed in percentage [2].

Example[edit]

To elaborate an example; when the demand elasticity is to be calculated, in case of commodities with the decreasing demand curve, the output of the calculation is always to be negative. Graphical presentation consists of the points, which are placed on the graph. There are two methods to calculate a value of the indicator: linear and non-linear demand curve. In some specific cases, it is hard to decide whether it is more profitable to change the price or not, which particularly depends on commodity cost and total impact on the revenue. It is also allowable, under specific conditions, that the elasticity goes infinite or aims for zero.

John Beardshaw in his Economics, A Student’s Guide describes the point elasticity as “the value of price elasticity at any one point on the curve”. Point elasticity is the price elasticity of demand at a specific point on the demand curve instead of over a range of the demand curve. It uses the same convention as the universal price elasticity of demand measure, but we can have information from the demand equalization to solve for the “change in” values instead of actually calculating a change given two points. The curve is expressed by an equation [3].\[ED = \frac{P}{Q} x \frac{dQ}{dP}\]

  • dQ/dP – deritvative of quantity with respect to price,
  • P – price and Q – quantity.

The calculation of point elasticity is executed in the cases, where the stakeholders want to find out the comparative price elasticity of demand and localize this value on the demand curve. Practically, it highly supports decision-making process in regards to prices and their variation on the market [4].

Footnotes[edit]

  1. M. Hirschey, E. Bentzen, 2016, p.132
  2. M. Hirschey, E. Bentzen, 2016, p.132
  3. A. Griffiths, S. Wall, 2008, p.55
  4. J. Beardshaw 2001, p.72

References[edit]

Author: Dominika Tatoń