Elasticity of Demand

What drives elasticity of demand: availability of substitutes
Always refer to elasticity of demand in absolute value
Formula: |E^D|=%triangleQ/%triangleP
Supply schedule is the marginal cost schedule
$Elasticity of demand:$ measure how responsive the quantity demanded is to the change in price
- More responsive quantity demanded is to a change in price, the more elastic the demand curve is
$Elasticity rule:$ if two linear demand (or supply) curves run through a common point, then at any given quantity the curve that is flatter is more elastic

The fundamental determinant of the elasticity of demand is how easy it is to substitute one good for another
- Fewer substitutes for a good, less elastic the demand
The more time people have to adjust to a change in price, the more elastic the demand curve will be
Demand is less elastic for goods that are considered to be “necessities” and is more elastic for goods that are considered “luxuries”

Percentage change in quantity demanded/ percentage change in price
delta= triangle shape= means “change in”
Elasticities of demand are always negative because when price goes up, quantity demanded always goes down
- Economists will drop negative sign and go with absolute value instead
$Inelastic:$ when the absolute value of the elasticity is less than 1
$Elastic:$ when the absolute value of the elasticity is greater than 1
$Unit elastic:$ when the absolute value of the elasticity is exactly equal to 1

formula: (change in quantity demanded/ average quantity)/(change in price/average price)

R=P times Q
If demand curve is inelastic, then revenues goes up when the price goes up and revenues go down when price goes down
If demand curve is elastic, then revenues goes down when price goes up and revenues go up when price goes down