Price Elasticity of Demand
Price Elasticity of Demand is defined as the responsiveness of the quantity demanded of a good or service to a change in its price.
It is measured with the formula
Price Elasticity of Demand is defined as the responsiveness of the quantity demanded of a good or service to a change in its price.
It is measured with the formula
% change in quantity
% change in price
If you have an answer >1, then demand is very sensitive to price. This means a small change of price leads to a BIG change in demand. Then demand is said to be PRICE ELASTIC.
If you have an answer <1 change in price leads to a small change in demand. The demand is said to be PRICE INELASTIC.
If your answer is =1 that means the demand is said to have UNITARY ELASTICITY, this means that price and demand change in the same portion.
It is possible to get an answer of 0. This is called Perfectly Inelastic Demand, this means change in price does not affect the demand at all.
It is possible to get an answer of infinity. This is called Perfectly Elastic Demand, this means if there is an increase in demand, no matter how small will cause the demand to drop to 0.
Video on Price Elasticity of Demand
http://www.youtube.com/watch?v=MNiEHvw6TTg
Price Elasticity of Supply
Price Elasticity of Supply is defined as the responsiveness of the quantity supplied of a good or service to a change in its price.
It is measured with the formula
% change in price
If you have an answer >1, then demand is very sensitive to price. This means a small change of price leads to a BIG change in demand. Then demand is said to be PRICE ELASTIC.
If you have an answer <1 change in price leads to a small change in demand. The demand is said to be PRICE INELASTIC.
If your answer is =1 that means the demand is said to have UNITARY ELASTICITY, this means that price and demand change in the same portion.
It is possible to get an answer of 0. This is called Perfectly Inelastic Demand, this means change in price does not affect the demand at all.
It is possible to get an answer of infinity. This is called Perfectly Elastic Demand, this means if there is an increase in demand, no matter how small will cause the demand to drop to 0.
Video on Price Elasticity of Demand
http://www.youtube.com/watch?v=MNiEHvw6TTg
Price Elasticity of Supply
Price Elasticity of Supply is defined as the responsiveness of the quantity supplied of a good or service to a change in its price.
It is measured with the formula
% change in quantity supplied
% change in price
If you have an answer >1, then supply is very sensitive to price. This means a small change price leads to a BIG change in the amount that firms wish to supply. Then supply is said to be PRICE ELASTIC.
If you have an answer <1 change in price leads to a small change in supple. The demand is said to be PRICE INELASTIC.
If your answer is =1 that means the supply is said to have UNITARY ELASTICITY, this means that price and supply change in the same portion.
It is possible to get an answer of 0. This is called Perfectly Inelastic Supply, this means change in price does not affect the supply at all.
It is possible to get an answer of infinity. This is called Perfectly Elastic Supply, this means if there is an increase in supply, no matter how small will cause the demand to drop to 0.
Video on Price Elasticity of Supply
http://www.youtube.com/watch?v=20b_zVHmZG0
% change in price
If you have an answer >1, then supply is very sensitive to price. This means a small change price leads to a BIG change in the amount that firms wish to supply. Then supply is said to be PRICE ELASTIC.
If you have an answer <1 change in price leads to a small change in supple. The demand is said to be PRICE INELASTIC.
If your answer is =1 that means the supply is said to have UNITARY ELASTICITY, this means that price and supply change in the same portion.
It is possible to get an answer of 0. This is called Perfectly Inelastic Supply, this means change in price does not affect the supply at all.
It is possible to get an answer of infinity. This is called Perfectly Elastic Supply, this means if there is an increase in supply, no matter how small will cause the demand to drop to 0.
Video on Price Elasticity of Supply
http://www.youtube.com/watch?v=20b_zVHmZG0
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