8 Questions
What does a price elasticity of demand of 0 indicate?
Quantity demanded does not change with price
How is price elasticity of demand represented when demand is price elastic?
Infinity
What does it mean when the price elasticity of demand is ∞?
A change in price leads to an infinite change in quantity demanded
When demand is price inelastic, what does a price elasticity of demand of 0 indicate?
Quantity demanded does not change with price
What does it mean when the price elasticity of demand is ∞?
A change in price leads to infinite change in quantity demanded
In the context of price elasticity of demand, what does 'unit elastic' mean?
A percentage change in price leads to the same percentage change in quantity demanded
What does total revenue represent in the context of price elasticity of demand?
Earnings generated from selling a product
How is price elasticity of demand calculated when demand is price elastic?
As a percentage change in quantity demanded divided by a percentage change in price
Study Notes
Price Elasticity of Demand
- A price elasticity of demand of 0 indicates that demand is perfectly inelastic, meaning that changes in price do not affect the quantity demanded.
Interpreting Price Elasticity
- When demand is price elastic, the price elasticity of demand is greater than 1, meaning that a small percentage change in price will lead to a larger percentage change in quantity demanded.
- A price elasticity of demand of ∞ indicates that demand is perfectly elastic, meaning that even the smallest change in price will lead to an infinite change in quantity demanded.
Inelastic Demand
- When demand is price inelastic, a price elasticity of demand of 0 indicates that demand is perfectly inelastic, meaning that changes in price do not affect the quantity demanded.
Elasticity Terms
- 'Unit elastic' means that the price elasticity of demand is equal to 1, meaning that a percentage change in price will lead to an equal percentage change in quantity demanded.
- Total revenue represents the total amount of money received by a firm from the sale of its product, and is used to analyze the impact of price changes on revenue in the context of price elasticity of demand.
Calculating Price Elasticity
- When demand is price elastic, the price elasticity of demand can be calculated using the formula: price elasticity of demand = (percentage change in quantity demanded) / (percentage change in price).
Test your knowledge of price elasticity of demand with this quiz. Learn about price inelastic and price elastic demand, and understand how changes in price affect quantity demanded.
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