Elasticity Of Demand

Elasticity Of Demand

• a measure of how consumers react to a △ in price 
• 3 types: inelastic, elastic & unitary 

Inelastic Demand will not change or will change very little regardless of price "Needs" Few to no substitutes Ex: water, milk, soap, insulin, gas E < 1

Elastic Demand will change greatly if there is a △ in price "Wants" There are substitutes Ex: soda, steak, fur coat E > 1

Unitary Perfect society & perfect economy E = 1

Total Revenue

• calculate using TR = (price) (quantity)

Price Ceiling

• the legal maximum price meant to help buyers
• ex: rent control
• 4 consequences to when price ceiling is set too low:
1. lower prices for some consumers
2. shortages
3. long lines for some buyers
4. illegal sales above the equilibrium price
• helps buyers!

Price Floor

• the legal minimum price meant to help sellers
• ex: minimum wage
• 4 consequences to when price floor is set too high:
1. higher product prices
2. surplus
3. higher taxes
4. waste
• helps sellers!