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