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How to Find the Price of Elasticity in Microeconomics

Microeconomics is all about finding out how people behave on the individual level rather than on the national or international level. Microeconomics in particular describes how people make financial choices. Elasticity is one microeconomics concept that calculates how tolerant people are of changes in the price of goods. For example, no matter how expensive food or water is, people will spend money to purchase those items. Other goods have a much more inelastic demand, so if the price rises, people are less likely to purchase them or at the very least will find substitute goods. You can find the price elasticity of a good using a simple equation.

Instructions

- 1
  Calculate the price elasticity of demand by dividing the relative change in quantity demanded by the relative change in price.
- 2
  Use the formal two-part equation to find the elasticity, taking each part separately.
  
  Part 1: (Q2 - Q1)/ ((Q1 + Q2))/2)
  
  where Q represents "quantity."
  
  Part 2: (P2 - P1)/ ((P1 + P2))/2)
  
  where P represents "price."
- 3
  Divide Part 1 by Part 2 to solve for the equation. Plug in values to calculate the formula. Assume Q1 is 80, Q2 is 100, P1 is $4 and P2 is $10.
  
  Part 1: (100 - 80)/(100 + 80)/2 = 2/9
  
  Part 2: (10 - 4)/((10 + 4)/2) = 6/7
- 4
  Divide Part 1 by Part 2 to produce a final value. For this problem, a calculator may be necessary.
  
  (2/9) / (6/7) = 0.259
  
  Price elasticity would be .259 for these data points. A graph of this line would have a slope of .259 as well.

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