ELASTICITY : economics 2

Elasticity Formula

E= % change in quantity demanded/ %change in price

elasticity measures?

The percent change in quantity demanded or supplied in response to a 1 percent change in price.

POINT elasticity

measures elasticity at a given point on the demand curve

(INELASTIC) when price increases?

revenue increases

INELASTIC

Revenue decreases when price decreases

Elasticity measures?

the sensitivity to the price

Goods that are a necassity

tend to have inelastic demand, meaning that changes in price have little effect on the quantity demanded.

Goods that have very poor substitutes

usually have inelastic demand, as consumers cannot easily switch to alternatives when prices change.

In a short period of time

Demand tends to be very inelastic.

(ELASTIC) when price dcreases

Revenue increases due to higher quantity demanded.

(ELASTIC) When price increases

revenue decreases

As price decreases along a demand curve

the coeffecient of elasticity does also

If elasticity is greater than 1

As price decreases, revenue increases

If elasticity is less than 1

price decreases and so does revenue

when elasticity is less than 1 and you increase price

your revenue goes up because demand is inelastic.

If elasticity is greater than 1 and you increase price

You decrease revenue because demand is elastic.

Marginal revenue

The change of revenue by selling 1 additional unit of output

MR formula

The change in revenue/ the change in quantity

IF | E | > 1

MR > 0

IF | E | < 1

MR < 0

IF | E | = 1

MR = 0

the coeffecient of elasticity changes along that line

Income Elasticity measures?

Sensitivity of a change in demand for a product resulting from a 1 percent change in income