Elasticity Flashcards
Define, Calculate and Interpret: Price elasticity of Demand and Cross price elasticity of demand Relationship between elasticity and total revenue Significance and importance of elasticity
define elasticity
A measure of the responsiveness of one variable to changes in another
Price elasticity of demand
the responsiveness of quantity demanded to a change in the product’s own price
Formula for price elasticity of demand
the percentage change in quantity demanded divided by the percentage change in price
Interpretation
allows comparison of quantity changes with price changes
Its necessary to decide how big a change in price or quantity is
Interpretation of elasticity of demand
PED>1= Elastic
PED<1=Inelastic
PED=1: Unit elastic
PED=0: Perfectly inelastic
PED=infinity: Perfectly Elastic
define elastic demand
where quantity demand changes by a larger amount than price.
Inelastic demand
where quantity demanded changes by a smaller proportion than price.
Unit elastic
where quantity demanded changes by the same proportion as price.
