1. Elasticity of Demand
Unit 2

2. Elasticity
Elasticity means responsiveness

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

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

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

6. Examples of Elastic Goods
Elastic Goods generally have PLENTY of substitutes

7. 20% change in quantity demanded
Elastic Demand
10% change in price
20% change in quantity demanded
= 2

8. Elastic Demand
Price
Quantity D
Not Very Steep

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

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

11. 10% change in quantity demanded
Inelastic Demand
10% change in quantity demanded
20% change in price
= .5

12. Inelastic Demand
Price
Quantity D
Very Steep

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

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