3.3 - Price Elasticity Of Demand

Price Elasticity Of Demand 

What is elasticity ? 

- Elasticity measures the responsiveness of demand to a change in a relevant variable - such as price or income 

Law of demand 

= Price up - Demand goes down 

= Price down - Demand goes up 

Price elasticity looks beyond the law of demand to ask the more subtle question. 

Price elasticity of demand 

• Price elasticity of demand measures the extent to which the quantity of a product demanded is affected by a change in price 

Relative Elasticity 

Price Elastic - % change in price results in a larger % change in demand

Product examples - Big Mac Meal / Transatlantic flights 

Price…