BA1310 9/14

Elasticity

a measure of the responsiveness of the quantity demanded or quantity supplied to a change in one of its determinants

The price elasticity of demand

measures how much the quantity demanded responds to a change in the price.

The demand for a good is elastic if…

the quantity demanded responds substantially to price changes.

The demand for a good is inelastic if…

if the quantity demanded responds only slightly to price changes.

what is Availability of Close Substitutes

That goods with close substitutes tend to have more elastic demand because it’s easier for customers to switch to the 2 goods.

what are Necessities

more likely to be inelastic, due to demands hardly changing

What are luxuries?

Likely to be more elastic, changes in price heavily changes demand

Narrowly defined market

tend to have more elastic demand than broadly defined ones. That’s because it is easier to find close substitutes for narrowly defined goods.

Broader defined market

has a fairly inelastic demand because there are no good substitutes for food.

what is time horizon

over time, demands are likely to become more elastic

how to find price elasticity of demand

price elasticity of demand=Percentage in quantity of demand/