AP Microeconomics 2.3-2.5

Price Elasticity of Demand

The measure of how responsive the quantity demanded is to changes in price

Inelastic Demanded

Quantity demanded doesn’t respond strongly to changes in price

Elastic demanded

Quantity demanded responds strongly to changes in price

Unit Elastic

Qd changes by the same % as the price changes price elasticity of demand equals one

Perfect Elastic

Quantity demanded changes infinitely with any changes in price

Perfectly Inelastic

Quantity demanded does not change with price changes

Availability of Close Substitutes

If there are many substitutes, demand is elastic

Necessities vs. Luxuries

If the good is considered a necessity, the demand is more inelastic

% of budget

The larger the percentage of total budget, the more elastic demand is

Time (Consumer)

The longer consumers have to adjust to a price changes the more elastic the demand is

The price of alternative inputs

If a firm finds it’s easy to find alternative in their production, supply would be more elastic

Time (Producer)

The longer producers have to adjust to prices changes the more elastic the supply is