Micro Econ – week 5

-A measure of how responsive buyers are to price changes. It measures the percent change in quantity demanded that follows from a 1% price change.
-That responsiveness is measured by the ratio of the percent change in quantity demanded to the percent change in price as you move along the demand curve

E(base D) = (% change in quantity demanded) / (% change in price)

-Absolute value focuses on the magnitude of the price elasticity of demand.

% change in quantity demanded = price elasticity of demand x % change in price

-When the absolute value of the percent change in quantity is larger than the absolute value of the percent change in price, which means that the absolute value of the price elasticity is greater than 1.
-When quantity is very responsive, demand is elastic.
-Flatter curve on graph

-When the absolute value of the percent change in quantity is smaller than absolute value of the percent change in price, which means that the absolute value of the price elasticity is less than 1.
-When quantity is very unresponsive, demand is inelastic.
-Steeper curve on graph

1-when there are more competing products
2-larger for specific brands (rather than broad categories)
3-for things that aren't necessities
4-when consumers search more
5-when there's more time to adjust

When any change in price leads to an infinitely large change in quantity

When quantity does not respond at all to a price change

-The total amount you receive from buyers, which is calculated as price × quantity.
-TR = price x quantity
-Higher prices lead to less total revenue if demand is elastic
-Higher prices lead to more total revenue if demand is inelastic.

-If demand for your product is currently inelastic, you should raise your prices.
-Use your demand elasticity to choose your pricing strategy.
-Knowing a market's demand elasticity can help you decide which market to enter.