Price Elasticity of Demand
determinants of price elasticity: If product demand is elastic, consumers will be more sensitive to price change if:
-many subsititutes -big percent of income -luxury item -more time to adjust
Inelastic demand
-small quantity responce -when price falls, consumers buy A LITTLE more -when price rises, consumers buy A LITTLE less -% change in Qd < % change in price -bottom greater than top
price elasticity of demand
the percentage change in quantity demanded divided by the percentage change in price
total revenue
the price of a product multiplied by the quantity sold in a given time period -TR=price * quantity sold
Law of Demand
the quantity of a good demanded in a given time period increases as its price falls
percentage change
(new-old/old) * 100
Elastic demand
-large quantity responce -when price falls, consumers by A LOT more -when price rises, consumers by A LOT less -consumers are very sensitive to price change -% change in Qd > % change in price -top greater than bottom
Perfectly elastic(E=infinite)
-demand curve is horizontal -increase price=quantity demanded is 0 -FLAT
Perfectly inelastic(E=0)
-demand curve is vertical -price wont effect the quantity demanded -STEEP
determinants of price elasticity: If product demand is INELASTIC, consumers will be less sensitive to price change if:
-few substitutes -spend small % of income -necessity -little time to adjust
elastic products follow the law of
demand
inelastic products follow the law of
supply
What does price elasticity of demand measure?
the resposiveness of consumers to a change in the price of a product