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Elasticity
Sensitivity of producers and consumers to a change in price.
Price Elasticity of Demand
How consumers react to change in price.
Relatively Inelastic
Change in quantity demand is small compared to change in price. Meaning that price isn’t really a factor.
Inelastic
Insensitive
Relatively Elastic
Price change leads to large changes in quantity demanded. Price makes a big difference to consumers.
Elastic items have
many substitutes and are wants
Inelastic items have
few substitutes and are often needs
Price Elasticity of Demand (PED)
percentage change of quantity / percentage change of price
A perfect inelastic demand graph has
elasticity of 0 and its a perfect straight vertical line.
A Relatively Inelastic demand graph has
elasticity is less than 1 and its a vertical line.
A unit elastic demand graph has
elasticity of 1 and a diagonal line.
A Relatively elastic demand graph has
elasticity greater than 1 and a diagonal line closer to its horizontal side.
A perfectly elastic demand graph has
elasticity of infinity and its a horizontal line.
Percentage Change formula
New number - old number / old number
Elasticity of demand formula
new quantity - old quantity / old quantity OVER new price - old price / old price
The higher the price
the higher the elasticity
Total revenue formula
Price unit times quantity (P*Q)
Total revenues is maximized where
the demand curve is unit elastic
demand elastic: price decreases
revenues increases
demand elastic: price increases
revenue decreases
demand elastic on graph
price is too high for sellers to maximize revenue & % change in price causes big % change in quantity demanded
Demand unit elastic on graph
revenue is maximized
Demand Inelastic on a graph: Price decreases
revenue decreases
Demand Inelastic on a graph: Price increases
revenue increases
Demand Inelastic on a graph
Price is too low for sellers to maximize revenue & % change in Price causes less % change in quantity demanded.
Note 
Flashcard (102)