A great summary of the price elasticity of demand toghether with an example you can find here: http://office.microsoft.com/en-us/FX011929781033.aspx
An applet to play around with: http://www.econtools.com/jevons/java/elastic/Elasticity.html
When the price elasticity of demand for a good is elastic (Ed greater than 1), the percentage change in quantity is greater than that in price. Hence, when the price is raised, the total revenue of producers falls, and vice versa.
When the price elasticity of demand for a good is inelastic (Ed less than 1), the percentage change in quantity is smaller than that in price. Hence, when the price is raised, the total revenue of producers rises, and vice versa.
When the price elasticity of demand for a good is unit elastic (or unitary elastic) (Ed = 1), the percentage change in quantity is equal to that in price. Hence, when the price is raised, the total revenue remains unchanged. The demand curve is a rectangular hyperbola.
When the price elasticity of demand for a good is perfectly elastic (Ed = infinity), any increase in the price, no matter how small, will cause demand for the good to drop to zero. Hence, when the price is raised, the total revenue of producers falls to zero. The demand curve is a horizontal straght line. A ten-dollar banknote is an example of a perfectly elastic good; nobody would pay $10.01, yet everyone will pay $9.99 for it.
When the price elasticity of demand for a good is perfectly inelastic (Ed = 0), changes in the price do not affect the quantity demanded for the good. The demand curve is a vertical straight line; this violates the law of demand.
(from Wikipedia)
No comments:
Post a Comment