Authors libby rittenberg 232

LEARNING OBJECTIVES
1. Explain the concept of price elasticity of demand and its calculation.
2. Explain what it means for demand to be price inelastic, unit price
elastic, price elastic, perfectly price inelastic, and perfectly price
elastic.
3. Explain how and why the value of the price elasticity of demand
changes along a linear demand curve.
4. Understand the relationship between total revenue and price
elasticity of demand.
5. Discuss the determinants of price elasticity of demand.
We know from the law of demand how the quantity demanded will
respond to a price change: it will change in the opposite direction. But
how much will it change? It seems reasonable to expect, for example, that a
10% change in the price charged for a visit to the doctor would yield a
different percentage change in quantity demanded than a 10% change in
the price of a Ford Mustang. But how much is this difference?
To show how responsive quantity demanded is to a change in price, we
apply the concept of elasticity. The price elasticity of demand for a good or
service, eD, is the percentage change in quantity demanded of a particular
good or service divided by the percentage change in the price of that good
or service, all other things unchanged. Thus we can write

Equation 5.2
eD = % change in quantity demanded
% change in price

Attributed to Libby Rittenberg and Timothy Tregarthen
Saylor URL: />
Saylor.org

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