114PART TWOSUPPLY AND DEMAND I: HOW MARKETS WORKthe economy. You are now well on your way to becoming an economist (or, at least,a well-educated parrot).◆The price elasticity of demand measures how much thequantity demanded responds to changes in the price.Demand tends to be more elastic if the good is a luxuryrather than a necessity, if close substitutes are available,if the market is narrowly defined, or if buyers havesubstantial time to react to a price change.◆The price elasticity of demand is calculated as thepercentage change in quantity demanded divided bythe percentage change in price. If the elasticity is lessthan 1, so that quantity demanded movesproportionately less than the price, demand is said to beinelastic. If the elasticity is greater than 1, so thatquantity demanded moves proportionately more thanthe price, demand is said to be elastic.◆Total revenue, the total amount paid for a good, equalsthe price of the good times the quantity sold. For
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