01/17/14 Elasticity of Damand

• Elasticity of Demand- A measure of how consumer's react to a change in price.
• 3 Types of Elasticity Demand
• Elastic Demand- Demand that is very sensitive to a change in price.
• They are substitutes
• Luxury Goods. Ex: Cars, Soda, and Meat
• Greater than $1 (>1)
• Inelastic Demand- Demand that is not very sensitive to a change in price.
• Few substitutes
• Necessities
• Ex: Gas, Insulin, Salt, Milk, Water
• Less than 1 (1>)
• Unitary Elastic=1
• How to calculate price elasticity in demand