Unit 12

PRICE, INCOME AND DEMAND

In this chapter we're going to investigate the price elasticity of demand for football tickets. Let's start by looking at Table 4. It reproduces the demand data from Tabl. 3, that is to say, it reproduces it in columns one and two.

Tabl. 4. The Price Elasticity of Demand for Football Tickets

PRICE (£/ticket)	Quantity of tickets demanded (thousands/game)	Price elasticity of demand
12,50 10,00 7,50 5,00 2,50 0	0 20 40 60 80 100	- -4 -1,5 -0,67 -0,25 0

We have to look at column one. As you can see, this shows price cuts of two pounds fifty. By considering the effects of price cuts of two pounds fifty we can calculate the price elasticity of demand at each price. This price is shown in column three. But how have we calculated this? Let's, as an example, take the price of ten pounds, which you can see in the table. There is a corresponding quantity of twenty thousand tickets demanded. If we consider a price cut to seven pounds fifty, there is a price change here of -25%, from ten pounds to seven pounds fifty. Now look at the corresponding change in the quantity of tickets demanded, in the next column, column two. The change in the quantity of tickets demanded is a 100%, from 20,000 tickets to 40,000 tickets.

There is a 100% change in demand, and a 25% change in price. So we divide a 100 by -25, which gives the answer -4. So we say the demand elasticity at ten pounds is -4. You calculate other elasticities in the same way that is by dividing the percentage change in quantity by the corresponding percentage change in price.

Notice one thing here in the table. That is when we begin from the price of twelve pounds fifty the demand elasticity is minus infinity. It's simply because the percentage change looks like this. Any positive number divided by zero yields plus infinity. When we then divide by the minus twenty per cent change in price, that's from twelve pounds fifty to ten pounds, we obtain or get, minus infinity as the demand elasticity at this price.

There's one more thing to be said at this stage. We say demand elasticity is high, when it is a large negative number. And we say demand elasticity is low, when it is a small negative number, and when the quantity demanded is relatively insensitive to price. It follows from this that the words high and low refer to the magnitude of the elasticity ignoring the minus sign. The demand elasticity falls when it becomes a smaller negative number and quantity demanded becomes less sensitive to price.

Vocabulary notes

to investigate - досліджувати, розглядати

to reproduce the data - представляти дані

price cuts - скорочення ціни

a corresponding quantity - відповідна кількість

a corresponding change in the quantity - відповідна зміна кількості

infinity - нескінченність

to yield - приносити, давати

magnitude - величина, розмір

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