Elasticity of Demand D. E. Weir Lawrence Central High School

Definition Elasticity describes the way that consumers (you) respond to price changes.

Inelastic A price increase will not change the consumer’s demand.

Elastic A price change will change the consumer’s demand.

Graphs $ Q $ Q InelasticElastic

Total Revenue Test Elastic – If you increase price and you get less income. Inelastic – If you change the price and you have the same or greater income

Total Revenue Test Pre-Change Price X Quan. Sold = TR

Total Revenue Test Pre-Change Price X Quan. Sold = TR $2.00 X 150 =

Total Revenue Test Pre-Change Price X Quan. Sold = TR $2.00 X 150 = $300

Total Revenue Test Pre-Change Price X Quan. Sold = TR $2.00 X 150 = $300 Post-Change Price X Quan. Sold = TR

Total Revenue Test Pre-Change Price X Quan. Sold = TR $2.00 X 150 = $300 Post-Change Price X Quan. Sold = TR $2.50 X 100 =

Total Revenue Test Pre-Change Price X Quan. Sold = TR $2.00 X 150 = $300 Post-Change Price X Quan. Sold = TR $2.50 X 100 = $250

Was there a significant change in Revenue?  Yes = Elastic  No = Inelastic

Factors Affecting Elasticity Availability of substitutes Relative importance Necessities vs. luxuries Time