AP Microeconomics / Unit 2: Supply and Demand
2.3 Price Elasticity of Demand
Notes
$$E_d=\frac{\%\Delta Q_d}{\%\Delta P}$$
- $|E_d|>1$ elastic; $<1$ inelastic; $=1$ unit elastic.
- Total revenue test: if elastic, price up → revenue down. If inelastic, price up → revenue up.
- More substitutes, luxuries and longer time make demand more elastic.
Practice
Price rises 10% and quantity falls 20%. $|E_d|=$
Elastic.
Insulin for diabetics probably has demand that is:
Few substitutes, necessity.
Demand is inelastic and the price rises. Total revenue:
Quantity barely drops.
Ready for more? Take the Unit 2 test.