Degree to which changes in a good’s price affect the quantity demanded by consumers

Exists when a small change in a good’s price causes a major, opposite change in the quantity demanded

1.Product is not a necessity 2.There are readily available substitutes 3.The product’s cost compared to consumers’ income

Change in a goods price has little impact on the quantity demanded

1.The product is a necessity 2.Few or no substitutes 3.Product’s cost small part of your income

Total Revenue test – easiest way to measure demand elasticity Total Revenue Test – called total receipts Total income that a business receives from selling its products

Drop in business’s total revenue (at a certain price) indicates elastic demand for that product

Changes in total revenue and changes in price move the same direction the good is inelastic Cubs tickets

Price increase and business’s revenue goes up means the product is inelastic

SELL GOOD AT HIGHEST POSSIBLE PRICE SO THAT YOU MAKE THE MOST REVENUE