Elasticity of Demand

Elasticity of Demand What goods would you always find

money to buy even if the price were to raise drastically?

What goods would you cut back on, or stop buying if the price were to rise just slightly?

Elasticity of Demand: A measure of how consumers react to a change

Calculating Elasticity

Elasticity= % Change in Quantity Demanded

% Change in Price

To find the percentage change:

Original # - New Number X 100

Original #See p. 92

PRICE RANGE

Elasticity of demand varies at every price level

Demand can be highly elastic at one price and inelastic at another

VALUES OF ELASTICITY 1) Elastic = Elasticity > 1

Change in price causes large change in demand

What types of products?

Many substitutes

ELASTIC

Elasticity > 1 Demand Curve will look like this:

Inelastic 2) Inelastic = Elasticity < 1

Change in price causes very little change in demand

What types of products?

Very few substitutes (necessities)

Inelastic

Elasticity < 1 = Inelastic Demand Curve will look like this:

Perfectly Inelastic

3) Perfectly Inelastic is when Elasticity=0

Change in price does not affect demand at all

Products?

Perfectly Inelastic

Elasticity = 0 Demand curve will look like this:

Unitary Elastic 4) Elasticity=1 % Change in quantity demanded is

exactly equal to the % change in price

Example: Piece of Pizza is $2 the demand is 100

pieces Piece of Pizza goes to $3 the demand is

50 pieces Price jumped 50% and the amount

demanded drops 50% = Unitary Elastic