CFA Study Guide

Economics: Elasticity Curves



Elastic Curve
Like a rubber band, it is very sensitive to price - a small change in price equals a much larger change in qty. numerically this produces a Numerator that is larger than the denominator, so the answer will be greater 1 and Visually this produces and horizontal line.

Key Point:
Quantity is larger, Numerator Larger, Elasticity of Demand, Larger than 1. Also Infinity is larger than 1.


Inelastic Curve
Not as sensitive to price - even a large change in Price has little effect on qty. Price changed is larger than Qty changed, the Numerator is smaller than denominator, and the answer will be smaller than one. Visually this produces a vertical line.

Key Point:
Quantity is smaller, Numerator smaller, Elasticity of Demand Smaller than 1, and 0 is always smaller than 1.