Unit 1 - Jan 17

Elasticity of Demand - A measure of how consumers react to a change in price.

• Elastic Demand - Demand that is very sensitive to a change in price. Greater than 1.
• Substitute and luxury goods.
• Ex. : Cars, sodas, and meat 
• Inelastic Demand - Demand that is not very sensitive to a change in price. Less than 1.
• Few substitute and a necessity.
• Ex. : Gas, insulin, and water.
• Unitary Demand - Equal to 1.

How to Calculate Price Elasticity of Demand.

• Step 1 : Change in quantity.
• (new - old) / old
• Step 2 : Change in price.
• (new - old) / old
• Step 3 : P.E.D = change in quantity.
• step 1 / step 2