issue reaches beyond governments and taxes. Every firm faces a similar issue. When a firm considers raising

the sales price, it must consider how much a price increase will reduce the quantity demanded of what it sells.

Conversely, when a firm puts its products on sale, it must expect (or hope) that the lower price will lead to a

significantly higher quantity demanded.

5.1 Price Elasticity of Demand and Price Elasticity of Supply

LEARNING OBJECTIVES

By the end of this section, you will be able to:

• Calculate the price elasticity of demand

• Calculate the price elasticity of supply

Both the demand and supply curve show the relationship between price and the number of units demanded or

supplied. Price elasticity is the ratio between the percentage change in the quantity demanded (Qd) or

supplied (Qs) and the corresponding percent change in price. The price elasticity of demand is the percentage
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