measure of responsiveness how much a dependent variable changes in response to a change in an independent variable
What change leads to what change?
change in price leads to a change in quantity demanded
percentage change (price)
(Pn - Po)/Po x100
price elasticity of demand
percentage change in quantity demanded in response to a percentage change in price
(Qn - Qo) x Po / (Pn - Po) x Qo
What type of value do you take from the PED equation?
absolute (positive value)
PED greater than 1
PED less than 1
PED equals 1
unitary price elastic
How do you label PED on demand curve?
Where does unitary elasticity of demand occur?
at midpoint halfway between its intersection of the x and y axes
total revenue equation
TR = price x quantity demanded
How do price - quantity demanded and total revenue - quantity demanded curves align?
Price elastic: price increases
Qd decreases TR decreases
Price elastic: price decreases
Qd increases TR increases
Price inelastic: price increases
Qd decreases TR increases
Price inelastic: price decreases
Qd increases TR decreases
Unitary elastic: price increases
Qd decreases TR no change
Unitary elastic: price decreases
Qd increases TR no change
availability and closeness of substitues for the good
greater number and closer substitues, higher PED
time available to adjust to changes in price
more time available: higher PED
time sufficient to fully adjust to a change of price
any time shorter than long run
necessity or luxury?
more necessity of good, lower PED
more addictive good, lower PED
proportion of income spent
greater proportion of income spent on good, higher PED
perfect elasticity of demand
Ed = undefined a lot is available at this price so consumers not willing to pay more and foolish for producers to charge less
perfect inelasticity of demand
Ed = 0 consumers only buy a fixed amount of good, does not vary with price
perfect unitary elasticity of demand
P x Q = k (constant) shape of curve is rectilinear hyperbola