Economics, 3rd Edition

Estimates of the Price Elasticity of Demand for a Selection of Goods

Product

Price Elasticity of Demand

Tobacco

0.4

Milk

0.3

Wine

0.6

Shoes

0.7

Cars

1.9

Particular brand of car

4.0

Movies

0.9

Entertainment

1.4

Furniture

3.04

Fuel

0.4

Bread

0.25

TABLE 4.1

Elasticity of a Linear Demand Curve

The slope of a linear demand curve is constant, but its elasticity is not. The demand schedule in the table was used to calculate 

the price elasticity of demand by the midpoint method. At points with a low price and high quantity, the demand curve is inelastic. 

At points with a high price and low quantity, the demand curve is elastic.

El ti it

f Li

FIGURE 4.5

Price

Total revenue

(Price 

× Quantity)

Price

Quantity

€7

6

5

4

3

2

1

0

€7

6

5

4

3

2

1

0

2

4

6

8

10

12

14

€0

12

20

24

24

20

12

0

15

18

22

29

40

67

200

Elasticity is

larger

than 1.

Elasticity is

smaller

than 1.

200

67

40

29

22

18

15

13.0

3.7

1.8

1.0

0.6

0.3

0.1

Elastic

Elastic

Elastic

Unit elastic

Inelastic

Inelastic

Inelastic

0

2

4

6

8

10

12

14

Per cent change

in quantity

Per cent change

in price

Price

elasticity

Quantity

description

Quantity

---

CHAPTER 4  ELASTICITY AND ITS APPLICATIONS  81

Even though the slope of a linear demand curve is constant, the elasticity is not. The reason is that the 

slope is the ratio of changes in the two variables, whereas the elasticity is the ratio of percentage changes 

in the two variables. You can see this by looking at the table in Figure 4.5, which shows the demand sched-

ule for the linear demand curve in the graph. The table uses the midpoint method to calculate the price 

elasticity of demand. At points with a low price and high quantity, the demand curve is inelastic. At points 

with a high price and low quantity, the demand curve is elastic.

The table also presents total expenditure at each point on the demand curve. These numbers illustrate 

the relationship between total expenditure and elasticity. When the price is 

€1, for instance, demand is 

inelastic and a price increase to 

€2 raises total expenditure. When the price is €5, demand is elastic, and 

a price increase to 

€6 reduces total expenditure. Between €3 and €4, demand is exactly unit elastic and 

total expenditure is the same at these two prices.