For the Green Curve we decrease the price of the product from 100 to 25 euro, then:    P1= 100  Qd1=20K ; P2= 25 Qd2=40k where k=1000

As a result PED=  0,33 (inelastic)
[minus sign can be dropped when we use absolute numbers]
The conclusion is that price elasticity of demand equals 0.33
This means that the change  in the Quantity Demanded is approximately 3  times smaller than the change in price. The change in quantity demanded does not correspond well to the change in price that is why all PED below one are called inelastic.

For the Blue Curve we decrease the price from 90 to 50 euro,
then: P1= 90 Qd1= 20k ; P2= 50 Qd2= 40k where k=1000.

As a result, PED= 1.25  
The Conclusion is that the Quantity demanded is approximately. 1.25 times bigger than the change is price which means that Quantity demanded respond well to the change in price. All PEDs bigger than one are called elastic, as they respond better to a change in price.

Value of PED is between zero and infinity, there is no minus PED value.

HINT: Rule of a Thumb 👍
The flatter the demand  curve that passes through a given point the greater
the price elasticity.
The steeper the curve that passes through a given point the smaller the price elasticity and the more inelastic.

What determines price elasticity or inelasticity of DEMAND?⬇️

1. AVAILABILITY OF SUBSTITUTES -> more elastic PED
The more substitues like Cola🥤 vs Pepsi🧋 or like pasta🍝B vs pasta🍜A then we have more options, as buyers, in a situation when one good changes its price. For example if Cola increased it's price then less people would buy it, as they would move to Pepsi, and so the demand for Cola would reppond strongly (decrease).
The more substitues, the more elastic demand.

2. NECESSITIES AND TIME HORIZON
Like gas, electricity⚡️, food🍎in (general) or clothes🧤 have less elastic PED as buyers do not have many substitutes for them. If the price of gas goes up we have to pay that price as we need to warm our house. However if we know that the increase or decrease in price will be long, we can try to change to a different necessity that is cheaper. For example if gas goes up for 10 years we can think of investing in photovoltaic panels which might be cheaper in the longer time frame - this determinant is called time horizon, and the longer the time horizon the more elastic the price.

3. LUXURIES
Have more elastic demand as when the prices of  jewellery💎, caviar🐠 or expensive alcohols🥃 go up, then most of the people just do not buy them as they are not necessary.

4. DEFINITION AND SCALE OF THE MARKET
For example food🍎 in general has no substitutes so it is a good with inelastic price. However items of food like ice cream🍨 or pepsi🥤have many substitutes and as a result people have more options, so the demand for those goods is elastic. Also the higher the income devoted to the product the more elastic the demand will be. If a family has chosen to buy the new furniture, they will probably look for a medium or low price product as it is a big expense. Those companies who increased their price on furniture🛋️🪑🛏️ should expect a big decrease in demand for their product, in favour of the companies who sale cheaper. In case of goods that include high income devoted to the product, the price elasticity will be more elastic.  

Based on the information provided above you know that the price elasticity of Demand can predict how much the Quantity Demanded will change when price of the good changes. The price buyers pay is received by sellers in form of the Total Revenue which is counted as price multiplied by Quantity Demanded at this price.

Total Revenue- total capital a seller obtains for selling n number of goods at a certain price TR= Qd x P

Let's look at the example of the difference of Total Revenue in the field of rents for Private Accomodation in Dublin.

(Mankiw & Taylor, 2020)

We are examining price and demand for a single-room in a 🏫private accommodation outside the campus.

In the 1st situation 5000 students will purchase a single-room for 600euro
(a month), so the total revenue for the seller - private accommodation
company - is: TR1= 5000x600euro = 3mln euro / month.

When the seller increases the price for a single-room from 600euro to 1200euro then the Quantity Demanded will decrease to 4000 students willing to buy at this price, due to the 📉Law of Demand. However as you can see the quantity demanded did not change dramatically, as accommodation
is a necessity - an inelastic good.

❗️In consequence of an increase in price and decrease in quantity demanded the TR2 = 4000x1200e= 4,8mln euro, so it will 💸increase by 1,8mln euro/month for the seller!

That is why private accommodation is getting more expensive - this increase is beneficial for the sellers! Simple. However it is negative for the buyers - us students🧑‍🎓 -that's why more the Quantity Demanded for digs - living with a family🏡 - will increase as a consequence of decrease in quantity demanded for private single-room accommodation. Or similarly more people will be more prone to choose 👥twin-rooms in private accommodation. In consequnce of increasing the prices for single-rooms the Total Revenue for the sellers is more beneficial✅ at the cost of some of the students living in less☹️ comfortable conditions.
Is that fair?

💡Think of policies that government could impose to reduce the rise of prizes for private accommodation single-rooms using your knowledge from the Price Control Part of this blog;)

Finally, beside Price Elasticity of Demand the following Elasticities of Demand apply:

income elasticity of demand = % change in Qd DIVIDED BY % change in income

normal goods clothes, food: higher income raises Qd - Positive income elasticity, as the higher your income the more normal goods you are able to purchase.
However income elasticity for normal goods varies: for luxuries its a high income elasticity (as richer ppl are more prone to purchase luxury goods) and and for necessities it is a small income elasticity (as everyone, no matter their income needs the neccesitties like medicine💊, and for inferior goods taxi🚖vs bus🚌: higher income lowers Qd -  negative income elasticities.

cross price elasticity of demand= %change in quantity demanded of good 1 DIVIDED by % change in quantity demanded of good 2
Applies to substitutes like pepsi vs cola = an increase in the price of pepsi is an increase in demand of cola, cross price elasticity for substitutes is positive

compliments = smartphones and payment plans, an increase on the price of smartphones will decrease the demand for plans 

(Mankiw & Taylor, 2020)

HINT: Rule of thumb: 👍 

• The steeper the supply curve, the less elastic or inelastic. An easy way to remember this is to think of the supply curve approaching a vertical line which represents the "I" in the word Inelastic. 

• The flatter the supply curve, on the other hand, the more elastic. An easy way to remember this is to think of the curve approaching a horizontal line which represents the "-" in the "E" in the word Elastic.

• Price Elasticity of Supply (PES)

|PES|= 1 : Unit elastic   (Quantity supplied changes by the same percentage as the price)

|PES|> 1 : Elastic           (Quantity supplied responds strongly to a price change)

|PES|< 1 : Inelastic        (Quantity supplied does not respond strongly to a price change)

(Ross, 2023)

What determines price elasticity of SUPPLY?⬇️

1.SIZE OF THE FIRM
The smaller the firm the more elastic its supply. This is due to the ability of a smaller firms to adapt to changes in the market relative to large established manufacturers. 

EXAMPLE:🧁                                                      

A local bakery can easily change their product range when consumer preferences change compared to a large-scale manufacturer.

2. FLEXIBLE FACTORS OF PRODUCTION

If factors to production or inputs are highly mobile it enhances elasticity of supply. 

EXAMPLE: 💻

A software development firm can easily assign their programmers to different projects as demand changes. 

3. EASE OF STORING STOCK
Products that can easily be stored have a more elastic supply due to being more readily available. 

EXAMPLE: 🛋️

A furniture store with a warehouse is more equip to respond effectively to an increase in demand as they have spare stock in their storage facility.

4. PRODUCTIVE CAPACITY
If firms are operating below their capacity, it is easier to increase production than when operating at full capacity. 

EXAMPLE: 👗

A local dress makes makes one dress a week during the off season, but when demand increases during peak season she increases her supply of dresses to three/four a week.

5. TIME HORIZON 

Longer time periods generally lead to more elastic supply, since there are more time to adjust production.

EXAMPLE: 🧑‍🌾

A farmer who wants to change their type of crops over the seasons; more elastic over longer time horizons.

CONCLUSION

Elasticity of demand and supply provides us with valuable insights into the market and is thus crucial to have a thorough understanding of this concept. Elasticity is more than an abstract theoretical concept, but a tangible force that impacts all economic actors, from consumers and firms to large policymakers like Governments. Understanding how elasticity shapes the world around us, from a highly responsive fast fashion firm to the slow-moving real estate market, enables us to make well informed decisions.

Summary 

The more elastic demand the bigger the change of the Quantity Demnded when the price changes and the more flat the curve is.

The more inelastic demand the smaller the change of the Quantity Demnded when the price changes and the more vertical the curve is.