Price and Elasticity of Demand

PRICE ELASTICITY OF DEMAND- A measure of how consumers react to change in price 

ELASTIC- Very sensitive to a change in price 
They are substitutes( not a necessity)
E>1 
Ex:Soda, Steak, Fur Coat 

INELASTIC- Not very sensitive t a change in price
few or no substitutes ( a necessity)
E<1
Ex: Insulin,Milk,Gas

UNITARY- E=1 

STEPS

1. Quantity

• New- Old/ Old

1. Price

• New-Old/Old

1. PED

%Δ in Quantity / %Δ in price