1. Elasticity of Demand
Chapter 4 Section 3

2. Defining Elasticity Elasticity of Demand Inelastic Elastic
A measure of how consumers respond to price changes
Inelastic
Describes demand that is not very sensitive to price changes
Elastic
Describes demand that is very sensitive to price changes

3. Calculating Elasticity
First find the percentage change for quantity demanded and for price
Percentage change = [(Original Number- New Number)/Original Number] X 100
Then, find elasticity by…
Elasticity = Percentage change Quantity Demand/ Percentage change in Price
Less than 1 = Inelastic; More than 1 = Elastic

4. Factors Affecting Elasticity
Availability of Substitutes
Relative Importance
Necessities vs. Luxuries
Change over Time

5. Elasticity and Revenue
Price of a Slice of Pizza
Quantity Demanded (per day)
Total Revenue
$1.00
300
$300
$2.00
250
$500
$3.00
200
$600
$4.00
150
$5.00
100
$6.00 50

6. Elasticity and Revenue
Elastic Demand
Inelastic Demand
PRICE
REVENUE
PRICE
REVENUE