elasticity

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

PED equation

(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

price elastic

PED less than 1

price inelastic

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

long run

time sufficient to fully adjust to a change of price

short run

any time shorter than long run

necessity or luxury?

more necessity of good, lower PED

addictive/habit-forming?

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