Two elasticity values can only be compared when they were found in the same way, over comparable ranges and time periods. If the base, method, price range or time period differ, the comparison can point the wrong way.
This is the closing skill in elasticity. It builds on percentage change and the base and on short-run and long-run responses.
What should match before you compare?
- The method: original base or midpoint.
- The direction: a rise and a fall between the same two prices use different bases.
- The time period: a one-month response and a three-year response are different measures.
- The price range: elasticity can change along a demand curve, so a small change near RM4 and a large one near RM40 are not the same.
- Other factors: income, tastes and rival prices should be held steady.
Worked example
Teh Harapan is a fictional drinks brand. Its price rises from RM4 to RM5 and weekly sales fall from 100 to 90.
Original base, rise: price +25%, quantity −10%, PED = −10 ÷ 25 = −0.4.
Now take the same two data points as a fall from RM5 to RM4, with quantity rising from 90 to 100.
Original base, fall: price = −1 ÷ 5 × 100 = −20%. Quantity = +10 ÷ 90 × 100 ≈ +11.11%. PED = 11.11 ÷ (−20) ≈ −0.56.
Midpoint method, either direction: price change = 1 ÷ 4.5 × 100 ≈ 22.22%. Quantity change = 10 ÷ 95 × 100 ≈ 10.53%. PED = 10.53 ÷ 22.22 ≈ 0.47 in size.
The same data gave 0.4, 0.56 and 0.47. None is wrong. Each answers a different calculation, so they cannot be placed side by side.
The mistake to watch for
A common slip is to compare numbers from different methods as if they were the same measure.
Mistaken answer: “Teh Harapan has PED of 0.4 (original base) and Kopi Sudut has PED of 0.47 (midpoint), so Kopi Sudut is more elastic.”
The two values use different methods. The gap may come from the method alone.
The correction is to recalculate both using one method, then compare. If you cannot recalculate, say that the figures are not directly comparable and explain why.
Check yourself
1. Two fictional firms report PED values: Firm A uses the original base for a price rise, and Firm B uses the midpoint method. Can you directly compare them? Give one reason.
Show answer
No. The methods use different bases, so the same data could produce different values. Recalculate both with the same method first.
2. A one-month PED is −0.3 for one product and a three-year PED is −0.9 for another product. A student says the second product is more elastic. What is wrong?
Show answer
The time periods differ, and so do the products. Time alone can raise elasticity. A fair comparison uses the same time period for both products.
3. Using the midpoint method, find the size of PED when price rises from RM10 to RM12 and quantity falls from 200 to 170.
Show answer
Price: 2 ÷ 11 × 100 ≈ 18.18%. Quantity: 30 ÷ 185 × 100 ≈ 16.22%. PED size ≈ 16.22 ÷ 18.18 ≈ 0.89.
Where this leads next
Test the whole topic with the elasticity practice set. The elasticity tutor lets you switch methods and watch the value change.
Judging whether two figures belong together is the kind of reasoning that improves with feedback. Our teachers give it in online one-to-one Economics tuition.