Elasticity of Demand Unit 2.

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Presentation transcript:

Elasticity of Demand Unit 2

Elasticity Elasticity means responsiveness

Elasticity of Demand How responsive the change in quantity demanded is when there is change in price

Equation: Elasticity of Demand % Change in Quantity Demanded % Change in Price

Elastic Demand Significant change in quantity demanded with change in price When Elasticity is >1

Examples of Elastic Goods Elastic Goods generally have PLENTY of substitutes

20% change in quantity demanded Elastic Demand 10% change in price 20% change in quantity demanded = 2

Elastic Demand Price Quantity D Not Very Steep

Inelastic Demand Minimal change in quantity demanded with change in price When Elasticity is <1

Examples of Inelastic Goods Inelastic Goods generally have FEW to NO substitutes. You’re willing to pay nearly any price for them.

10% change in quantity demanded Inelastic Demand 10% change in quantity demanded 20% change in price = .5

Inelastic Demand Price Quantity D Very Steep

Unitary Elastic % Change in Quantity Demanded = % Change in Price Elasticity = 1

Total Revenue Revenue = Price x Quantity Sold Revenue is based on Quantity Sold