January 11, 2017

 Elasticity of Demand Notes

What is elasticity of demand?

•  It is the measure of how consumers act to a change in price.

What is elastic demand?

•  It is a demand that is very sensitive to a change in price. 
• Product is not a necessity 
• There are available substitutes 
•  Ex:  steak, fur coats, and soda 
• E>1

 What is inelastic demand? 

•  It is the man that is not very sensitive to change in price. 
• Product is a necessity 
• Few to no substitutes
•  Ex: Gas & Insulin
• E<1

What is Unitary Elastic?

• It is the demand for a good if a change in the price of that good causes an equal change in quantity demanded. 
• E=1

How to calculate PED?

• Step 1: Quantity 

New Quantity - Old Quantity 

          Old Quantity

• Step 2: Price

New Price - Old Price 
          Old Price

• Step 3: PED

  % change in Quantity
    % change in Price



What is Total Revenue?

• It is the total amount of money a firm receives from selling goods & services. 

How to calculate Total Revenue? 

Total Revenue = Price x Quantity