price elasticity of demand

• Elasticity is a measure of just how much the quantity demanded will be affected by a change in price or income or other factor
• Price elasticity of demand measures the responsiveness of quantity demanded to changes in the price of the good
• Cross elasticity measures the responsiveness of quantity demanded to changes in the price of another good
• Price elasticity = percentage change in quantity demanded / percentage change in  price
• Percentage change = (change / original value) x 100%
• Demand is price elastic if the value of elasticity is greater than 1
• Demand is price inelastic if the value of elasticity is less than 1
• Demand is of unitary elasticity if the value of elasticity is exactly 1 
• The better the substitutes for a product, the higher the price elasticity of demand will tend to be 
• The more widely the product is defined, the fewer substitutes it is likely to have 
• • The longer the period of time, the more price elastic is the demand for a product
• Price elasticity of demand and changes in total revenue or total expenditure of a product are linked
• Total expenditure = quantity purchased x price
• Total revenue = quantity sold x price
• If the percentage change in price is larger than the percentage change in quantity demanded then expenditure will rise when prices rise
• If the percentage change in price is smaller than the percentage change in quantity demanded then spending will fall as prices rise 
• One way of measuring point elasticity of demand is to draw the demand curve and measure the gradient of line at the point and then invert it
• Arc price elasticity of demand - the price elasticity of demand between 2 points on the demand curve
• Elastic demand - where the price elasticity of demand is greater than 1. The responsiveness of demand is proportionally greater than the change in price
• Inelastic demand - where the price elasticity of demand is less than 1. The responsiveness of demand is proportionally less than the change in price 
• Point price elasticity of demand - the price elasticity of demand at a point on the demand curve measuring an infinitely small change in price 
• Price elasticity of demand - the proportionate response of changes in quantity demanded to a proportionate change in price
• Unitary elasticity - where the value of price elasticity of demand is 1. The responsiveness of demand is proportionally equal to the change in price