Lesson 2.3: Elasticity of Demand

Flashcards made from a presentation segment created as a lesson on the elasticity of demand.

Elasticity of demand

The way consumers respond to price changes, measuring how drastically buyers will change their spending patterns based in price

• Determined by original price and consumer desire; can help measure how price changes can affect revenue

• Values lower than 1 are less elastic

• Values higher than 1 are more elastic

Inelastic good

A good with demand that is not very sensitive to price changes

• Life-saving medicine - people have to buy

• Gasoline - people cannot stop driving

Elastic good

A good with demand that is very sensitive to price changes

• Smoothies - people might just buy juice

• Magazines - you might end your subscription

Availability of substitutes

How much a product can be replaced; a lack of these can make demand inelastic while a wide range of these can make demand elastic