Elasticity Formulas
Price Elasticity of Demand
Ed = %ΔQd / %ΔP
|Ed| > 1: elastic · |Ed| < 1: inelastic · = 1: unit elastic
Midpoint (Arc) Formula
E = [(Q₂−Q₁)/((Q₁+Q₂)/2)] ÷ [(P₂−P₁)/((P₁+P₂)/2)]
Avoids getting a different answer depending on which point you start from.
Price Elasticity of Supply
Es = %ΔQs / %ΔP
Income Elasticity
Ei = %ΔQd / %ΔIncome
Ei > 0: normal good · Ei < 0: inferior good
Cross-Price Elasticity
Exy = %ΔQx / %ΔPy
Exy > 0: substitutes · Exy < 0: complements
Elasticity & Total Revenue
TR = P × Q
Elastic: price ↑ → revenue ↓. Inelastic: price ↑ → revenue ↑. Unit elastic: revenue unchanged.
Market Structures Compared
| Perfect Competition | Monopolistic Competition | Oligopoly | Monopoly | |
|---|---|---|---|---|
| Number of firms | Many | Many | Few | One |
| Product | Identical | Differentiated | Identical or differentiated | Unique, no close substitutes |
| Barriers to entry | None | Low | High | Very high / blocked |
| Price control | Price taker | Some price control | Significant, interdependent | Price maker |
| Long-run economic profit | Zero | Zero | Can be positive | Can be positive |
| Example | Agricultural commodities | Restaurants, clothing brands | Airlines, wireless carriers | Local water utility |
Consumer & Producer Surplus
Consumer surplus (blue) sits above price, below demand. Producer surplus (green) sits below price, above supply.
Monopoly Deadweight Loss
A monopolist restricts output to Qm (where MR = MC) and charges Pm — above the competitive price Pc at Qc. The shaded triangle is the deadweight loss from underproducing.
Tax Incidence & Deadweight Loss
A per-unit tax drives a wedge between what buyers pay (Pc) and what sellers receive (Pp), shrinking quantity from the untaxed equilibrium to Qt. The shaded triangle is the deadweight loss of the tax.