elasticity of demand 

==price elasticity== shows how demand changes with price

shows how much the price change affects the demand

price elasticity formula;

price elasticity of demand = % change in quantity demanded / % change in price

its always negative - a positive change in price can cause negative change in demand, then a negative change in price causes a positive change in demand.

ignore minus sign

if its greater than one ( ignore minus sign) the product is ==PRICE ELASTIC==

e.g -1.5

the % change in demand is ==bigger== than the % change in price for price elastic products.

If the price elasticity od demand is less than one its ==PRICE INELASTIC==

e.g -0.5

the % change in demand is ==less== than the % change in price for price Inelastic products

how price elasticity affects rev and profit;

• price elasticity shows how price affects salves revenue
• sales revenue = price of product X quantity sold
• if a product is price elastic a price increase will make sales rev decrease…. the money lost form the % decrease in sales will be more than the money gained from the increased in price.
• for price elastic products a firm can increase rev by reducing a price as it increases the number of sales
• for price inelastic, a rise in price will make sales rev increase…. the money lost form the % decrease in sales will be less than the money gained from the % increase in price.
• for price inelastic products, decreasing the price will make sales increase but sales rev goes down because price has fallen and only a few more units have been sold.
• milk is price inelastic because the change in price doesn’t have an effect on demand.
• businesses try to differentiate their products to create brand loyalty. loyal customers won’t switch despite the price increase so this makes the products less price elastic. iPhones are price inelastic due to the strength of the brand.
• petrol sales are inelastic but sales of an individual company’s petrol are elastic.

elasticity helps a business make choices

• price elasticity helps a manufacture decide whether to rise of lower the price of product
• income elasticity helps a manufacturer see what will happen to sales if economy grows or shrinks