PRICE ELASTICITY OF DEMAND

PRICE ELASTICITY OF DEMAND:
-measure of how consumers react to a change in price



•ELASTIC DEMAND
•INELASTIC DEMAND
•UNITARY ELASTIC DEMAND

ELASTIC DEMAND:
-demand that is VERY sensitive to a change in price
- E > 1
- product is not a necessity, there are available substitutes
- ex: soda, steak, fur coat

INELASTIC DEMAND:
- E < 1
- demand that is NOT sensitive to a change in price
- product is a necessity
- few or no substitutes
-ex: insulin, milk, gas, salt

UNITARY ELASTIC DEMAND:
- E = 1

PED:
- S1: quantity
new- old
———-
old
- S2: price
new- old
————
old

-S3: % in quantity
        ——————
        % in price