Price Elasticity of Demand

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Presentation transcript:

Price Elasticity of Demand Measures the relative responsiveness of the change in quantity demanded as a result of change in a product’s price

Elastic Demand Refers to consumers being responsive to price changes Demand curve very broad

Inelastic Demand Consumers unresponsive to price changes Demand curve very steep

Determining Price Elasticity Amount of income Number of substitutes Time period

Income Small portion of income= inelastic demand Ex: Condiments, Pens Large portion of income=elastic demand Ex: Appliances, Houses

Number of Substitutes A lot of substitutes= elastic demand Ex: Chevy cars, Tide Few substitutes= inelastic demand Ex: Gas, Salt

Time Period Short time period = inelastic demand Long time period = elastic demand

Total Revenue Total amount of money a company receives from sales of a product Total Revenue= Price X Quantity Sold

Elasticity and Revenue Relationships Elastic Demand Inelastic Demand Decreasing price Increases total revenue Decreasing Price Decreases total Increasing price

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