| A | B |
|---|
| demand elasticity | The extent to which a change in price causes a change in the quantity demanded. It has 3 cases: elastic, inelastic, or unit elastic |
| elastic | type of elasticity in which a change in price results in a larger change in quantity demanded. |
| inelastic | A case of demand elasticity where the percentage change in price causes a less than proportionate change in quantity demanded |
| unit elastic | A case of demand elasticity when a given change in price causes a proportionate change in quantity demanded. |
| Total expenditures test- elastic demand | A change in price and a change in revenue (total expenditures) move in opposite directions. |
| Total expenditures test- unit elastic demand | There is no change in total expenditutes or revenue regardless of change in price. |
| Total expenditures test- inelastic demand | A change in price and a change in revenue move in the same direction. |
| Determinants of Demand elasticity | 1) Can the purchase be delayed? 2) Are adequate substitutes available? 3) Does the purchase use a large portion of income? |
| Can the Purchase be delayed? | Sometimes consumers can't postpone the purchase of a product. This tends to make demand inelastic, meaning that the quantity of the product demanded is not especially sensitive to changes in price. Example: People who need to take medication on a regular schedule will pay higher prices rather than delay buying. |
| Are adequate substitutes available? | If adequate substitutes are available, consumers can switch back and forth between the product and its substitute to take advantage of the best price making demand for the product elastic. |
| Does the purchase use a large portion of income? | If the amount is large then demand tends to be elastic. If the amount of income is small, demand tends to be inelastic. |
