Elasticity and Its Applications (Chapter 4)

Elasticity and Its Applications (Chapter 4)

1. The Price Elasticity of Demand

   • elasticity - a measure of the responsiveness of quantity demanded or quantity supplied to one of its determinants
   • price elasticity of demand - a measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price
   • price elasticity of demand = percentage change in quantity demanded / percentage change in price
   • total expenditure - the amount paid by buyers, computed as the price of the good times the quantity purchased