Elasticity and Its application C Chapter 5
Elasticity and Its Application Chapter 5
Elasticity is a measure of how much buye nd ers an sellers respond to changes in market conditions allows us to analyze su apply and demand with greater precision
Elasticity… • … is a measure of how much buyers and sellers respond to changes in market conditions • … allows us to analyze supply and demand with greater precision
Price elasticity of Demand o Price elasticity of demand is the percentage change in quantity demanded given a percent change in the price o It is a measure of how much the quantity demanded of a good responds to a change in the price of that good
Price Elasticity of Demand • Price elasticity of demand is the percentage change in quantity demanded given a percent change in the price. • It is a measure of how much the quantity demanded of a good responds to a change in the price of that good
Determinants of Price elasticity of demand Necessities versus luxuries Availability of close substitutes o Definition of the market Time horizon
Determinants of Price Elasticity of Demand • Necessities versus Luxuries • Availability of Close Substitutes • Definition of the Market • Time Horizon
Determinants of Price elasticity of demand Demand tends to be more elastic if the good is a luxury. o the longer the time perio the larger the number of close substitutes the more narrowly defined the market
Determinants of Price Elasticity of Demand Demand tends to be more elastic : • if the good is a luxury. • the longer the time period. • the larger the number of close substitutes. • the more narrowly defined the market