Microeconomics  Price Elasticity
Now that you have completed the basics, let us move onto the various learning outcomes on Microeconomics you should look to know for your upcoming exam.
Price Elasticity
In general, the elasticity of a particular variable is the percentage change in quantity demanded or supplied, divided by the percentage change in the variable of concern. This ratio is often called the elasticity coefficient.
Price elasticity is defined as the percentage change in quantity demanded divided by the percentage change in price.
The price elasticity of demand can be expressed as:
Formula 3.1 
Example: Price Elasticity
Where E_{p} is the price elasticity coefficient, %ΔQ represents the percentage in quantity, and %ΔP represents the percentage in price. If the price of gasoline goes up by 50%, and the quantity demanded decreases by 20%, the price elasticity of gasoline would be:
E_{p } = %Δ Quantity = 20% = 0.4
%Δ Price +50%
Typically, the negative sign is ignored and we would say that the price elasticity of gasoline is 0.4.
To calculate elasticity we must first have data for quantities purchased at different prices. Suppose that the price of a good goes from P_{0} to P_{1}, and that we have data for the change in quantity demanded, which goes from Q_{0} to Q_{1}. The calculation is typically made by dividing the actual change by the average(or midpoint) of the beginning and ending values. Suppose that the quantity demanded of a good goes from 10 to 14. The percentage change in quantity demanded could be expressed as:
(Q_{0}  Q_{1}) = 4 = 0.333
0.5(Q_{0} + Q_{1}) 0.5(24)
That number would be multiplied by 100 to get the percentage change, which in this case would be 33.3%.
Similarly, the percentage change in price can be expressed as:
(P_{0}  P_{1}) x 100
0.5(P_{0} + P_{1})
Look Out! Sometimes the denominator used for these percentage change calculations is simply the original value (P0 and Q0). Because the CFA text uses the midpoint method, unless the exam has instructions to the contrary, it would be safer to use the midpoint method. 
The full elasticity calculation can be simplified by canceling out the 0.5 (onehalf) and 100. The more simplified expression can be stated as:
Example:
Suppose, to continue the example given above, that the change in quantity demanded for the good (10 to 14) was in response to a price decrease from $8 to $7. In that case, the elasticity would be expressed as:
(10  14) / (10 + 14) = 4 / 24 = 1/6 = 15 = 2.5
(8  7) / (8 + 7) 1 / 15 1/15 6
Alternatively, the elasticity could have been calculated as: 4 divided by half of 24, which is equal to 0.333, over 1 divided by half of 15, which equals 0.1333.
So the elasticity would be 0.333 over 0.133 =  2.5, the same answer as above.
The following definitions apply to calculations of price elasticity:
1) If E_{p} > 1, Demand is elastic. The percentage change in price will produce a greater percentage in quantity demanded. If the price goes up, then total revenues will go down. If the price goes down, then total revenues willincrease.
2) If E_{p} < 1, Demand is inelastic. The percentage change in price will produce a lower percentage in quantity demanded. If the price goes up, then total revenues will go up. If the price goes down, then total revenues will decrease. Put simply, these changes will be less drastic than if demand is elastic.
3) If E_{p} = 1, Demand has unitary elasticity. A percentage in price will produce the exact same percentage change in quantity. Therefore, changes in price will no have effect on total revenues.
If demand is elastic for a product, then a small change in price will cause a large change in quantity demanded. If the demand for a product is inelastic, even a large change in price might cause little change in quantity demanded.

Economics
Economics Basics: Elasticity
Investopedia Explains: What elasticity is, how to calculate elasticity, the difference between elastic and inelastic curves, and the various factors that impact elasticity. 
Fundamental Analysis
How Demand Changes With a Variation in Price
What is demand elasticity? 
Economics
What's Demand Elasticity?
Demand elasticity is the measure of how demand changes as other factors change. Demand elasticity is often referred to as price elasticity of demand because price is most often the factor used ... 
Economics
Price Elasticity Of Demand
Price elasticity of demand describes how changes in the cost of a product or service affect a company's revenue. 
Economics
Calculating Income Elasticity of Demand
Income elasticity of demand is a measure of how consumer demand changes when income changes. 
Economics
What Does Inferior Good Mean?
The term “inferior good” does not describe a lack of quality, but rather, is an economic term used when discussing elasticity of demand for a good. 
Fundamental Analysis
Calculating The Gain Or Loss On An Investment
Calculating the percentage of change in an investment is easy. Take the amount the investment gains and divide it by the amount invested. 
Economics
What is Demand?
Demand is the economic term for the cumulative wants and desires of consumers as they relate to a particular good or service. Generally speaking, if all other factors remain constant, as demand ... 
Economics
What Is Supply?
Supply is the amount of goods a producer is willing to produce at a given price, and is one of the most basic concepts in economics. 
Options & Futures
A Guide To Investing In Consumer Staples
These companies may not be flashy but they offer investors structure and diversification.

Cross Elasticity Of Demand
An economic concept that measures the responsiveness in the quantity ... 
Income Elasticity Of Demand
A measure of the relationship between a change in the quantity ... 
Arc Elasticity
The elasticity of one variable with respect to another between ... 
Elastic
An economic term referring to the change in behavior that buyers ... 
Total Revenue Test
A test that approximates the price elasticity of demand by comparing ... 
Elasticity
A measure of a variable's sensitivity to a change in another ...

What are some examples of demand elasticity other than price elasticity of demand?
Learn about income elasticity of demand and cross elasticity of demand and how to interpret these two measures of demand ... Read Answer >> 
Under what circumstances might price elasticity significantly change?
Discover under what circumstances price elasticity of demand might change and why it is such an important economic concept ... Read Answer >> 
Which factors are more important in determining the demand elasticity of a good or ...
Learn about demand elasticity of goods and services and the main factors that influence the elasticity of demand. Read Answer >> 
How does price elasticity change in relation to supply and demand?
Learn about how variations in price elasticity affect the supply and demand curves and what factors cause differences in ... Read Answer >> 
If a particular good's price elasticity is high, does this mean the supplier should ...
Learn the basics of price elasticity of supply and demand and how each influences a company's production of goods and pricing ... Read Answer >> 
How do you quantify price elasticity?
Learn how to calculate the coefficient for price elasticity, enabling you to approximate how sensitive supply and demand ... Read Answer >>