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12 Cards in this Set
- Front
- Back
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What is price elasticity of demand?
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measure of responsiveness of the quantity demanded of a good to a change in its price
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Calculation for price elasticity of demand
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% change in quantity demanded/ % change in price
Change in Q/Change in P |
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Perfectly inelastic demand
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elasticity = 0, price does not affect demand
Demand curve is vertical |
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Inelastic demand
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elasticity >0 <1
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Unit elastic demand
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Elasticity = 1
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Elastic Demand
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elasticity >1, price change leads to a large change in demand
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Perfectly elastic demand
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elasticity = infinity
Demand curve is horizontal |
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What is a major factor that affects elasticity?
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Substitutes
*the more substitutes, the larger it elasticity |
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How does elasticity change along a demand curve?
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Not static
*Elasticity decreases as price falls *Elasticity is unit elastic at the mid-point of the demand curve *Below the mid-point, demand is inelastic |
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Effect on total revenue when the price falls and demand is inelastic
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Decrease in total revenue
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Effect on total revenue when the price falls and demand is unit elastic
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No change in total revenue
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Effect on total revenue when the price falls and demand is elastic
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Increase in total revenue
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