Questions and Answers
What does price elasticity of demand measure?
How much the quantity demanded of a good responds to a change in the price of that good
What tends to make demand more elastic?
The larger the number of close substitutes
How is price elasticity of demand computed?
As the percentage change in the quantity demanded divided by the percentage change in price
What does elasticity allow us to analyze with greater precision?
Signup and view all the answers
What factor makes demand less elastic?
Signup and view all the answers
What does price elasticity of demand measure?
Signup and view all the answers
What makes demand more elastic?
Signup and view all the answers
What allows us to analyze supply and demand with greater precision?
Signup and view all the answers
What makes demand less elastic?
Signup and view all the answers
How is the price elasticity of demand computed?
Signup and view all the answers
Study Notes
Price Elasticity of Demand
- Measures how responsive the quantity of a good or service demanded is to changes in its price
- Tends to be more elastic when:
- Substitutes are available
- The good is a luxury
- The time to adjust to price changes is longer
- Computed using the formula: (change in quantity demanded ÷ original quantity demanded) ÷ (change in price ÷ original price)
- Allows us to analyze the sensitivity of demand to price changes with greater precision
- Demand is less elastic when:
- The good is a necessity
- There are no close substitutes
- The time to adjust to price changes is shorter
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
