Econ Notes: Elasticity of Demand

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

Elastic Demand: very sensitive to change in price; lots of substitutes (ex: a Rolls Royce instead of a Bentley or Fanta instead of Coke). GREATER THAN 1 (>1).
Inelastic Demand not very sensitive to a change in price; few substitutes. Usually deals with necessity (ex: insulin, gas, milk, salt, must-have resources). LESS THAN 1 (<1)
Unitary Demand: ANYTHING = 1.

Calculating Price Elasticity of Demand (PED)

1. find Δ in quantity --> (new - old) / old = ΔQ
2. find Δ in price --> (new - old) / old = ΔP
3. find PED --> ΔQ / ΔP
4. use the ABSOLUTE VALUE of your answer as the final answer