Learning objectives
Define price elasticity of demand, calculate it from percentage changes (including the midpoint method) and classify demand as elastic, inelastic, unit elastic, perfectly elastic or perfectly inelastic
Explain the determinants of price elasticity of demand: availability of substitutes, necessity versus luxury, share of the budget, time horizon and how narrowly the market is defined
Use the total revenue test to predict how a price change affects a firm's revenue, and explain why elasticity varies along a straight-line demand curve
Define price elasticity of supply, calculate it and explain its determinants, including the time period and how easily inputs can be adjusted
Calculate and interpret income elasticity of demand (normal, inferior, luxury and necessity goods) and cross-price elasticity of demand (substitutes and complements)
Continue with a revision plan
These learning objectives are available to everyone. Sign in with an eligible plan to read the full note and worked examples.