January 11, 2017

Elasticity of Demand 

Elasticity of Demand: Measure of how consumers react to a change in price.

Elastic Demand: Demand that is very sensitive to a change in price.

• Product is not a necessity
• There are available substitutes 

*Example: Steak, Fur Coat, Soda 

E > 1

Inelastic Demand: Demand that is NOT very sensitive to a change in price.

• Product is a necessity 
• There are few to no substitutes 

*Example: Gas, Insulin (We still buy gas/insulin no matter how high)

I < 1

Unitary Elastic:  

E = 1

Step 1: Quantity 

New Quantity-Old Quantity/Old Quantity

Step 2: Price

New Price-Old Quantity/Old Quantity 

Step 3: PED

% Change in Quantity/% Change in Price

Total Revenue: The total amount of money a firm receives from selling goods and services.

Price x Quantity (PxQ)

*MUST HAVE A $!!!!