Eco- price elastic of demand

• Price elasticity of demand measures..


  The responsiveness of consumers' demand for a product when its price changes
• If ED is less than one, the good is considered to be inelastic.
• If ED is greater than one, the good is considered to be elastic.
• Total Revenue (TR)


  Price multiplied by quantity Price*Quantity (P*Q)
• Mid point method of Calculating Price Elasticity of demand 


  $ED =$$Qd²- Qd¹÷P² - P¹ × P¹+$$P²÷Qd¹ +$$Qd²$
• When Calculating Price Elasticity of Demand the negative result will be..


  Ignored since Ed will always be negative as when Price Increases Quantity demanded falls
• Elastic demand will have TR ... when price increase and decrease of…

  Price increase - TR will decrease

  Price decrease- TR will increase

  Elastic goes opposite ways
• Inelastic Demand will have TR .... when price increase and decrease

  Price increase - TR increase

  Price decrease - TR decrease

  Inelastic moves in same direction
• Demand curve showing elastic is..


  Not that steep - laying man
• Demand curve is inelastic when..


  Steep stick- standing man
• Inelastic shows ..


  That a change in price will result in a proportionately small change in demand.
• Elastic shows..


  That a change in price will result in a proportionately larger change in demand
• A inelastic curve looks like...

  Total Revenue does not have much difference

  
• A elastic curve looks like...

  Total Revenue has a noticeable difference

  
• Price elasticity of demand


  Measures the responsiveness of consumers' demand for a product when its price changes
• Responsiveness of demand


  Refers to how much the quantity demanded of a product changes in response to a change in its price
• Percentage change in quantity demanded

  The difference between the new quantity demanded and the original quantity demanded, divided by the original quantity demanded, expressed as a percentage
• Percentage change in price

  The difference between the new price and the original price, divided by the original price, expressed as a percentage
• Price elasticity of demand formula


  Calculated as the percentage change in quantity demanded divided by the percentage change in price
• Elastic demand


  When the price elasticity of demand is greater than 1, demand is considered elastic
• Inelastic demand


  When the price elasticity of demand is less than 1, demand is considered inelastic
• Unit elastic demand


  When the price elasticity of demand is equal to 1, demand is considered unit elastic
• Unit elastic demand


  When the price elasticity of demand is equal to 1, demand is considered unit elastic. This means that a given percentage change in price will result in an equal percentage change in quantity demanded.
• Formula for PED

  %Change in Quantity Demanded / % change in Price
• Availability Of Substitutes


  the easier it is to switch to another product the more elastic (sensitive) the demand
• Nature of the Good or service


  a necessity will have inelastic demand as consumers need to buy good irrespective of price (e.g water)

  luxury will have elastic demad since customers can simply chose not to buy if prices too high

  reputed necessities - some items that people believe that they need to have ( e.g Starbucks coffee, fashion items, etc)
• Proportion of total income spent on product

  If small amount of total income spent on good - then consumers will be less concerned about price change - so demand likely to be inelastic

  if large proportion of total income spent - price change may change buying behavior - making demand elastic
• Unit elastic demand

  Price elasticity of demand is equal to 1, indicating that the percentage change in quantity demanded is equal to the percentage change in price
• Inelastic demand

  Price elasticity of demand is less than 1, indicating that quantity demanded is not very responsive to changes in price
• Elastic demand

  Price elasticity of demand is greater than 1, indicating that quantity demanded is very responsive to changes in price
• P¹

  Initial price
• P²

  New price
• Qd²


  Quantity demanded at the new price
• Qd¹


  Quantity demanded at the initial price
• Key words

  Proportion

  greater proportion / less proportion

  high elastic/lnelastic

  low inelastic/elastic
• Necessity

  A good or service that is essential for survival or well-being. Has inelastic demand.
• Luxury

  A good or service that is not necessary for survival or well-being, but is desired for comfort or pleasure. Has elastic demand.
• Reputed necessities

  Goods or services that people believe they need to have, even though they are not truly necessary for survival or well-being. Has elastic demand, with consumers willing to pay a premium but still sensitive to changes in price.