Understanding Price Elasticity of Demand

Define elasticity of demand.

• Elasticity of demand is a measure of the responsiveness of quantity demanded to a change in price.

• Elasticity of demand is the total quantity sold at a fixed price.

• Elasticity of demand measures consumer satisfaction levels.

• Elasticity of demand refers to the total revenue generated from sales.

Price elasticity of demand (PED) is a measure of how much the quantity demanded

of a good changes when there is a change in its own (a)   .

Add the correct label to the correct axis.

a

b

Quantity demanded

Average Price Level

Price

Aggregated demand

What does price inelastic demand mean?

• Price inelastic demand means that quantity demanded increases significantly when the price decreases.

• Price inelastic demand refers to a situation where demand is completely unaffected by price changes.

• Price inelastic demand indicates that consumers will stop buying the product if the price rises.

• Price inelastic demand means that the quantity demanded does not significantly change when the price changes.

Using a "price and quantity demanded" diagram, illustrate INELASTIC demand and provide a PED value for this good.

Define unitary elastic demand.

• Unitary elastic demand is when the price change is the same % as the quantity demanded change.

• Unitary elastic demand means that a change in price does not affect the quantity demanded.

• Unitary elastic demand is when the price elasticity of demand is greater than one.

• Unitary elastic demand occurs when demand is perfectly inelastic.

Using a "price and quantity demanded" diagram, illustrate ELASTIC demand and provide a PED value for this good.

What is perfectly elastic demand?

• When there is no change in quantity demanded with price changes.

• When the quantity demanded changes infinitely/rapidly with any change in price.

• When quantity demanded remains constant regardless of price changes.

• When the quantity demanded decreases as price decreases.

Select which of these goods has perfectly inelastic demand.

• Luxury cars

• A car in Lima

• Designer handbags

• Insulin for diabetics.

Calculate PED if the quantity demanded changes from 100 to 80 when the price increases from $10 to $12.

• 0.5

• 2

• 3

• 1