# Elastic, Unitary Elastic, or Inelastic

**Topics:**Supply and demand, Price elasticity of demand, Elasticity

**Pages:**2 (491 words)

**Published:**February 21, 2012

PROBLEM: Suppose you are a painter, and the price of a gallon of paint increases from $3.00 a gallon to $3.50 a gallon. Your usage of paint drops from 35 gallons a month to 20 gallons a month. Perform the following:

Compute the price elasticity of demand for paint and show your calculations.

Decide whether the demand for paint is elastic, unitary elastic, or inelastic.

Explain your reasoning and interpret your results.

Compute the price elasticity of demand for paint and show your calculations.

In order to compute the price elasticity, I must use the following formula: Ed=% Change in quantity demanded/% Change in price=(Q2-Q1)/Q1/(P2-P1)/P1= P1 - Price before change

P2 - Price after change

Q1 - Quantity before change

Q2 - Quantity after change

Ed- Price elasticity of demand

Now I can enter in my values: E_d= (20-35)/35/(3.50-3.00)/3.00, E_d= (-15)/35/(.50)/3.00,

E_d= -0.429/0.167, E_d= -2.569

So every month, the price elasticity of demand for paint is -$2.57. Decide whether the demand for paint is elastic, unitary elastic, or inelastic.

Based on the definitions above, it seems that the supply and demand of the paint varies significantly due to the price raising from $3.00 to $3.50 a gallon. So the demand for paint is Elastic.

Explain your reasoning and interpret your results.

The demand...

References: Elastic Definition. (2012). Retrieved February 13, 2012, from Investopedia ULC: http://www.investopedia.com/terms/e/elastic.asp#axzz1mCXH0ucW

Inelastic Definition. (2012). Retrieved February 13, 2012, from Investopedia: http://www.investopedia.com/search/default.aspx?q=inelastic#axzz1mCXH0ucW

Microeconomics- Price Elasticity of Demand. (2012). Retrieved February 13, 2012, from tutor2u.net: http://tutor2u.net/economics/revision-notes/as-markets-price-elasticity-of-demand.html

Unitary Elasticity. (2012). Retrieved February 13, 2012, from BusinessDictionary.com: http://www.businessdictionary.com/definition/unitary-elasticity.html

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