A measure of how consumers respond to price changes

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A measure of how consumers respond to price changes Elasticity of Demand 3.3 Are there some products you would continue to buy, even if the price were to rise dramatically? Are there some products you would stop buying even if the price just increased slightly? A measure of how consumers respond to price changes

Inelastic Elastic Relatively unresponsive to price changes Very responsive to price changes Elastic

Factors Affecting Elasticity Inelastic Availability of Substitutes Few substitutes, you might buy it no matter what Favorite band, life saving medication Lots of substitutes, can easily but something else Elastic

Factors Affecting Elasticity Relative Importance (How much of your budget you spend on it) If you spend a lot of your income on a good, demand is elastic

Factors Affecting Elasticity Necessities v. Luxuries Varies greatly person to person Necessity=always buy no matter what Inelastic

Factors Affecting Elasticity Change over time When price changes, people need time to change their spending habits (don’t always respond quickly) In the short term Demand become more elastic over time Inelastic

Elasticity < 1 = demand is inelastic Elasticity > 1 = demand is elastic Elasticity = 1 = Unitary elastic

2 - 02.20

Elasticity Affects Revenue Total Revenue: amount of money the company receives by selling its goods Determined by price and quantity sold You own a pizza stand, how do you increase your total revenue? 11/21/2018 Footer Text

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Elasticity Affects Revenue If demand is elastic, raising the price might decrease revenue If demand is inelastic, price and total revenue move in the same direction 11/21/2018 Footer Text

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