1. As the Price of X increases…
QD decreases…..
But by how much?

2. Why? What makes it different?
200% increase in price
33% increase in Price
66% decrease in Qd
40% decrease in Qd
Why? What makes it different?

3. Ch. 5: Elasticity
A measure of how much buyers and sellers respond to changes in market conditions:
Changes in : Price; Income; Price of Related Goods

4. S + D discussion has been qualitative so far….
…now we begin quantitative
How much does S + D change in response
= A measure of the responsiveness of quantity demanded or quantity supplied to one of its determinants

5. Price Elasticity of Demand
=measure of how much the quantity demanded of a good responds to a change in the price of that good
= % change in Qd
% change in P
D for a good is ELASTIC if…. Qd responds more than P
D for a good is INELASTIC if….Qd responds less than P

6. Ex:
If P of ice cream rises 10% and it causes you to buy 20% less ice cream
% change Qd % = 2
% change P %
………the PEd for ice cream = 2
Less 1 = inelastic
1 = unit elastic
Greater 1 = elastic
0 = perfectly inelastic
Infinite = perfectly elastic

7. Determinants of Elasticity
Economic, social, psychological forces shape consumer behavior
Necessities vs. Luxuries
Availability of Close Substitutes
Definition of the Market (broad or narrow)
Time Horizon (long or short)

8. 0 = perfectly inelastic
infinite = perfectly elastic

9. Less than one = inelastic
One = unit elastic
Greater than one = elastic

10. Steeper the slope , ……….
The more inelastic

11. Linear D curve
Slope is constant
What about Elasticity?
Elasticity changes
How/Why?

12. Negatives do not matter for PED Mid point method p. 96
Total Revenue (PxQ)
Inelastic :
P increase ; then TR …..
increases - why ?
P decrease; then TR …..
Decreases – why?
So the rule is…….

13. Elastic: P increases; TR….? TR decreases - why P decreases; TR …..?
increases - why
So the rule is……..

14. TR when D is Unit Elastic
Elastic: as P falls, TR rises
what about TR when it’s Unit Elastic?
Inelastic: as P falls TR falls

15. TR when D is Unit Elastic
What if it is Unit Elastic over a range…?
As P falls, TR would not change