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4.2 Elasticity of Demand

4.2 Elasticity of Demand. Objectives. Compute the elasticity of demand, and explain its relevance. Discuss the factors that influence elasticity of demand. 4.2 Elasticity of Demand. Key Terms. elasticity of demand total revenue. Percentage change in quantity demanded.

damian-ortega
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4.2 Elasticity of Demand

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  1. 4.2 Elasticity of Demand Objectives Compute the elasticity of demand, and explain its relevance. Discuss the factors that influence elasticity of demand.

  2. 4.2 Elasticity of Demand Key Terms elasticity of demand total revenue

  3. 4.2 Elasticity of Demand Percentage change in quantity demanded Elasticity of demand = Percentage change in price Computing the Elasticity of Demand • Elasticity of demand measures the percentage change in quantity demanded divided by percentage change in price.

  4. 4.2 Elasticity of Demand The Demand for Pizza • If the price falls from $12 to $9, the quantity of pizza demanded increases from 14 million to 20 million per week Figure 4.3

  5. 4.2 Elasticity of Demand Elasticity Values • Elastic • Unit elastic • Inelastic

  6. 4.2 Elasticity of Demand Elasticity and Total Revenue • Total revenue is price multiplied by the quantity demanded at that price. • Knowing a product’s elasticity can help businesses with their pricing decisions.

  7. 4.2 Elasticity of Demand Determinants of Demand Elasticity • Availability of substitutes • Share of consumer’s budget spent on the good • A matter of time • Some elasticity estimates

  8. 4.2 Elasticity of Demand $3.50 3.00 D y D m Price per gallon D w 0 50 75 95 100 Millions of gallons per day Demand Becomes More Elastic Over Time Figure 4.4

  9. 4.2 Elasticity of Demand Selected Elasticities of Demand Figure 4.5

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