n = (% change in Quantity Demanded)/(% change in own price)
- What impacts n?
(1) Time (2) Budgets (3) Substitutes
If n is: | Demand at that point is: | “Picture” | “Words” | Total Revenue Changes |
>1 | “elastic” | flat | sensitive | ΔTR moves in opp. Direction than ΔP |
= 1 | Unit elastic | X | X | X |
<1 | “inelastic” | steep | Not very sensitive | ΔTR same as ΔP |
1) Time: long run = elasticity higher, short run = elasticity lower
2) Budget: higher elasticity for things that make up a great % of budget
3) Substitutes: higher elasticity if more substitutes
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