Elasticity of Demand

Definition: A measure of how consumers react to a change in price.

The Three Different Types

1. Elastic Demand: Demand that is very sensitive to a change in price.
• Product is not a necessity and there are available substitutes
• Always MORE than 1
2. Inelastic Demand: Demand that is not very sensitive to a change in price.
1. Product is a necessity, there are few to no substitutes.
2. People will buy no matter what.
3. Always LESS than 1
3. Unitary Elastic Demand
1. Always EQUAL to 1

How to calculate Price Elasticity of Demand (PED)

Step 1: Quantity

New Quantity - Old Quantity

             Old Quantity                  =% Change in Quantity Demand

Step 2:Price

New Price - Old Price

          Old Price                           = % Change in Price

Step 3: PED

% Change in Quantity Demand

       % Change in Price                = Price Elasticity of Demand (PED)