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

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

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

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

6. Graphs $ Q $ Q InelasticElastic

7. 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

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

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

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

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

12. 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 =

13. 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

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

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