 A measure of how much buyers and sellers respond to changes in market conditions:  Changes in : Price; Income; Price of Related Goods

 S + D discussion has been qualitative so far….  …now we begin quantitative  How much does S + D change in response  = A measure of the responsiveness of quantity demanded or quantity supplied to one of its determinants

 =measure of how much the quantity demanded of a good responds to a change in the price of that good  = % change in Qd % change in P  D for a good is ELASTIC if…. Qd responds more than P  D for a good is INELASTIC if….Qd responds less than P

 Ex:  If P of ice cream rises 10% and it causes you to buy 20% less ice cream  % change Qd 20% = 2 % change P 10% ………the PEd for ice cream = 2 Less 1 = inelastic 1 = unit elastic Greater 1 = elastic 0 = perfectly inelastic Infinite = perfectly elastic

 Economic, social, psychological forces shape consumer behavior 1. Necessities vs. Luxuries 2. Availability of Close Substitutes 3. Definition of the Market (broad or narrow) 4. Time Horizon (long or short)

 0 = perfectly inelastic  infinite = perfectly elastic 

 Less than one = inelastic  One = unit elastic  Greater than one = elastic

 Steeper the slope, ……….  The more inelastic

 Linear D curve  Slope is constant  What about Elasticity?  Elasticity changes  How/Why?

 Negatives do not matter for PED  Mid point method p. 96  Total Revenue (PxQ)  Inelastic :  P increase ; then TR …..  increases - why ?  P decrease; then TR …..  Decreases – why?  So the rule is…….

 Elastic:  P increases; TR….?  TR decreases - why  P decreases; TR …..?  increases - why  So the rule is……..

Elastic: as P falls, TR rises Inelastic: as P falls TR falls what about TR when it’s Unit Elastic?

What if it is Unit Elastic over a range…? As P falls, TR would not change