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12 Cards in this Set

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What is price elasticity of demand?
measure of responsiveness of the quantity demanded of a good to a change in its price
Calculation for price elasticity of demand
% change in quantity demanded/ % change in price

Change in Q/Change in P
Perfectly inelastic demand
elasticity = 0, price does not affect demand

Demand curve is vertical
Inelastic demand
elasticity >0 <1
Unit elastic demand
Elasticity = 1
Elastic Demand
elasticity >1, price change leads to a large change in demand
Perfectly elastic demand
elasticity = infinity

Demand curve is horizontal
What is a major factor that affects elasticity?
Substitutes
*the more substitutes, the larger it elasticity
How does elasticity change along a demand curve?
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
Effect on total revenue when the price falls and demand is inelastic
Decrease in total revenue
Effect on total revenue when the price falls and demand is unit elastic
No change in total revenue
Effect on total revenue when the price falls and demand is elastic
Increase in total revenue