Elasticity

hwo people respind to changes

Price elasticity of Demand

how quantity demanded changes in response to price

inelastic: quantity changes a little

elasric: quanitity changes a lot

midpoint formula

PED = % change in quanitty demanded / % change in price

sign of elasticity

• almost always negative, so we care abt abs value

|EPD| > 1 elastic; quantity is responsive to price

|EPD| = 1 Unit elastic, price & quantity change at same rate

|EDP| < 1 inelastic; quantiny is not very responsive to price

perfect inelastic demand: verical line, prescription medicine or addiction

perfectly elastic demand: horizontal line

effects on elasticity

availability fo substitutes

necessities (inelastic) vs luxuries (birkin)

time horizon: demand elastic in long run

definition of market- broad category (food) vs specific (carrots)