Price Elasticity of Demand
Price Elasticity of Demand- Measure of how consumers react to a change in price
Elastic Demand
- Demand that is very sensitive to a change in price
- E > 1
- Product is not a necessity and there are available substitutes
- Example: Soda(water, milk), Steak(chicken, pork)
Inelastic Demand
- Demand that is not sensitive to a change in price.
- E < 1
- Product is a necessity and few/no substitutes
- Example: Insulin
Unitary Elastic
- E = 1
Calculating Price Elasticity of Demand (PED)
- Quantity: (New-old)/old
- Price: (New-old)/old
- PED = %Δ in quantity/ %Δ in price
Price Elasticity of Demand- Measure of how consumers react to a change in price
Elastic Demand
Elastic Demand
- Demand that is very sensitive to a change in price
- E > 1
- Product is not a necessity and there are available substitutes
- Example: Soda(water, milk), Steak(chicken, pork)
- Demand that is not sensitive to a change in price.
- E < 1
- Product is a necessity and few/no substitutes
- Example: Insulin
- E = 1
- Quantity: (New-old)/old
- Price: (New-old)/old
- PED = %Δ in quantity/ %Δ in price
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