Elasticity and Price Elasticity of Demand

Flashcards covering key concepts related to elasticity and the price elasticity of demand, as discussed in the lecture notes.

Elasticity

A measure of how responsive demand or supply is to price changes.

Inelasticity

A situation where demand or supply changes very little in response to price changes.

Price Elasticity of Demand (PED)

A measure of how responsive buyers are to price changes, calculated as the percent change in quantity demanded divided by the percent change in price.

Law of Demand

States that there is an inverse relationship between price and quantity demanded; as price goes up, quantity demanded goes down.

General Formula for PED

Epd = % Change in Quantity Demanded / % Change in Price.

Elastic Demand

When the quantity demanded changes more than the price change (Epd > 1).

Inelastic Demand

When the quantity demanded changes less than the price change (Epd < 1).

Graphical Representation of Elasticity

An elastic demand curve is flatter, indicating high responsiveness, while an inelastic demand curve is steeper, indicating low responsiveness.

Percent Change in Quantity Demanded

Always in the numerator when calculating price elasticity of demand.

Percent Change in Price

Always in the denominator when calculating price elasticity of demand.