The Importance of Units in Calculating Elasticity

Oct 13, 2025 by wbrum.org 55 views

Introduction

In the realm of economics, particularly in the context of business and marketing, the concept of price elasticity is a crucial tool for understanding how changes in price affect demand. However, when it comes to calculating elasticity, a common question arises: what units should be used to measure the price and quantity of a product? In this article, we will delve into the world of price elasticity and explore why the choice between using "units" or "thousands" of movie tickets makes no difference in determining elasticity.

What is Price Elasticity?

Price elasticity is a measure of how responsive the quantity demanded of a product is to a change in its price. It is calculated as the percentage change in quantity demanded in response to a 1% change in price. The formula for calculating price elasticity is:

Elasticity = (Percentage change in quantity demanded) / (Percentage change in price)

For example, if a 10% increase in price leads to a 20% decrease in quantity demanded, the price elasticity would be 2.

The Importance of Units in Calculating Elasticity

When calculating price elasticity, the choice of units can seem like a trivial matter. However, it can have a significant impact on the accuracy of the results. In the context of movie tickets, for instance, should we use the number of tickets as the unit of measurement, or should we use thousands of tickets?

Using Units (1, 2, 3, 4, 5, 6, 7, 8)

Let's assume that we have a table with the following data:

Price (units)	Quantity (units)
1	100
2	80
3	60
4	40
5	20
6	10
7	5
8	2

Using this data, we can calculate the price elasticity as follows:

Elasticity = (Percentage change in quantity demanded) / (Percentage change in price)

For example, if we look at the first two rows of the table, we can calculate the price elasticity as follows:

Elasticity = ((80 - 100) / 100) / ((2 - 1) / 1) = -20% / 100% = -0.2

Using Thousands (1,000, 2,000, 3,000, 4,000, 5,000, 6,000, 7,000, 8,000)

Now, let's assume that we have a table with the following data:

Price (thousands)	Quantity (thousands)
1	0.1
2	0.08
3	0.06
4	0.04
5	0.02
6	0.01
7	0.005
8	0.002

Using this data, we can calculate the price elasticity as follows:

Elasticity = (Percentage change in quantity demanded) / (Percentage change in price)

For example, if we look at the first two rows of the table, we can calculate the price elasticity as follows:

Elasticity = ((0.08 - 0.1) / 0.1) / ((2 - 1) / 1) = -20% / 100% = -0.2

Why the Choice of Units Matters Not

As we can see from the calculations above, the choice of units (units or thousands) makes no difference in determining the price elasticity. The elasticity is the same in both cases: -0.2. This is because the percentage change in quantity demanded is the same in both cases, and the percentage change in price is also the same.

Conclusion

In conclusion, the choice between using "units" or "thousands" of movie tickets makes no difference in determining elasticity. The key takeaway is that the elasticity is a ratio of the percentage change in quantity demanded to the percentage change in price, and it is not affected by the choice of units. This is an important concept to understand, as it can have significant implications for businesses and marketers who need to make informed decisions about pricing and demand.

References

Krugman, P. (2009). Microeconomics. Worth Publishers.
Mankiw, G. (2012). Principles of Economics. Cengage Learning.
Varian, H. (2010). Intermediate Microeconomics: A Modern Approach. W.W. Norton & Company.