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Price elasticity of demand
Price elasticity of demand measures how sensitive quantity demanded is to a change in price: the percentage change in quantity divided by the percentage change in price.
Key ideas
- Elastic (>1): quantity reacts a lot — think holidays or a specific brand of coffee.
- Inelastic (<1): quantity barely moves — think petrol or insulin.
- Total revenue rises when you cut the price of an elastic good, and falls for an inelastic one.
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