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

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

3. Inelastic Demand Consumers unresponsive to price changes
Demand curve very steep

4. Determining Price Elasticity
Amount of income
Number of substitutes
Time period

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

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

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

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

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