Demand

• Price Elasticity of Demand


  Measures the responsiveness or sensitivity of quantity demanded to a change in price of a product
• Elastic Demand

  A strong response to a change in price.

  • Price and revenue move in opposite directions.
  • As price increases, quantity demanded decreases
• Unit Elastic Demand

  A proportional response to a price change.

  • Revenue remains unchanged in response to a price change
  • As price increases, quantity demanded decreases but total revenue remains the same as previous years
• Inelastic Demand

  A weak response to change.

  • When price and revenue move in the same direction.
  • As price increases, quantity demanded increases
• Total Outlay Method


  A way to calculate price elasticity of demand by looking at the changes in price on the revenue earned by the producer
• Total Outlay Method

  • Elastic - Price and revenue move in opposite direction
  • Inelastic - Price and revenue move in same direction
  • Unit Elastic - Revenue remains unchanged in response to a price change
• Perfectly Elastic Demand - Theoretical

  Consumers will demand an infinite quantity at a certain price, but nothing at all at a price above this.
• Perfectly Inelastic Demand


  Consumers are willing to pay any price to obtain a given quantity of a good.