(1) Price Elasticity of Demand

Steven E. Crane, Marquette University

Topic Category Price Elasticity of Demand

Abstract

This introduces the general concept of elasticity as a measure or indicator of relative responsiveness. The focus in on changes measured as percentages. The more specific concept of Price Elasticity of Demand is introduced. Various approaches to calculation of a price elasticity are identified. The interpretation of an elasticity index is explained. There is a discussion of how price elasticity is related to demand curves, both their general shapes and at different locations along a linear demand curve. The connection between price elasticity, price changes, and firm total revenues is explained.