ELASTICITY OF DEMAND

WHAT IS IT?

• Elasticity of demand is a measure of how people respond to price changes.
• It measures how drastically buyers will cut back or increase their demand for a good when a price rises or falls, respectively.
• Demand can be defined as either elastic or inelastic.

HOW IS IT CALCULATED?

• To calculate the order of demand: take the percent change in the quantity of the good demanded, and divide this number by the percent change in the price of the good.

WHAT IS INELASTIC?

• Inelastic is a term used to describe a demand which is relatively unresponsive to price changes.
• If you buy the same amount or just a little less of a good after a large price increase, the demand could be described as inelastic.

DIFFERENCE BETWEEN ELASTIC AND INELASTIC GOODS

• Elastic goods- the demand changes depending on the price of the good. Ex: pizza price rises by 40%, the demand drops by 60%.
• Inelastic goods- keep a steady demand no matter of drastic changes in price. Ex: price rises $2-$3 and the demand drops from 4-3 slices.