Wednesday, January 11, 2017

Price Elasticity of Demand

Elasticity of Demand

  • Measure of how consumers react to a change in price 
  • 3 Types 
    • Elastic Demand 
      • Demand that is sensitive to a change in price 
        • Product is not a necessity 
        • There are available substitutes 
        • E > 1 
          • Ex. 
            • Steak
            • Fur
            • Soda
    • Inelastic Demand
      • Demand that is not very sensitive to a change in price 
        • Produce is necessity 
        • Few to no substitutes 
        • E < 1 
          • Ex. 
            • Gas
            • Insulin 
    • Unitary Elastic
      • E = 1
Price Elasticity of Demand (PED)
  • Step 1: Quality 

New Quantity - Old Quantity 

Old Quantity

  • Step 2: Price

New Price - Old Price 
Old Price 
    • Step 3: PED 
    Percent Change in Quantity
    Percent Change in Price 
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    1 comment:

    1. Abdullah Z.January 24, 2017 at 5:56 AM

      Inelastic demand in terms of medicine is becoming more and more rare because there are some pharmaceutical companies that are starting to make cheaper and generic drugs.

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