Elasticity of Demand

What goods would you always find money to buy even if the price were to raise drastically? What goods would you cut back on, or stop buying if the price were to rise just slightly? Elasticity of Demand: A measure of how consumers react to a change

Calculating Elasticity Elasticity= % Change in Quantity Demanded % Change in Price To find the percentage change: Original # - New Number X 100 Original # See p. 92

PRICE RANGE Elasticity of demand varies at every price level Demand can be highly elastic at one price and inelastic at another

VALUES OF ELASTICITY 1) Elastic = Elasticity > 1 Change in price causes large change in demand What types of products? Many substitutes

ELASTIC Elasticity > 1 Demand Curve will look like this:

Inelastic 2) Inelastic = Elasticity < 1 Change in price causes very little change in demand What types of products? Very few substitutes (necessities)

Inelastic Elasticity < 1 = Inelastic Demand Curve will look like this:

Perfectly Inelastic 3) Perfectly Inelastic is when Elasticity=0 Change in price does not affect demand at all Products?

Perfectly Inelastic Elasticity = 0 Demand curve will look like this:

Unitary Elastic 4) Elasticity=1 % Change in quantity demanded is exactly equal to the % change in price Example: Piece of Pizza is $2 the demand is 100 pieces Piece of Pizza goes to $3 the demand is 50 pieces Price jumped 50% and the amount demanded drops 50% = Unitary Elastic