Elasticity of Demand

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

Elastic Demand: demand that is very sensitive to s change in price. (e>1)
                         - Products not a necessity
                         - There are available substitutes

Inelastic Demand: demand that is not very sensitive to a change in price. (e<1)
                         - Product is a necessity
                         - There are few or no substitutions
                         - People will buy no matter what

                                                  Price Elasticity of Demand

Step 1: Quantity = new quantity-old quantity/old quantity

Step 2: Price = new price-old price/old price

Step 3: PED = % change in quantity demanded/ % change in price demanded