Handout-PriceElasticityofDemand

Handout-PriceElasticityofDemand - Price Elasticity of...

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Price Elasticity of Demand How sensitive is the demand for a product or service to a change in the price of that product or service? Price elasticity of demand (E P ) is a measure that tells us how much quantity demanded is going to change in response to a change in the price, holding constant all other factors that influence demand Price elasticity of demand (E P ) defined – the percentage change in quantity demanded due to a 1% change in price Price elasticity of demand (E P ) formula: E P = % change in Q D % change in P
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Price Elasticity of Demand – 2 Inelastic Demand: Business air travel: E P = -0.75 By formula: the % change in Q D must be smaller than the % change in P Impact on revenue - the effect from the change in price is going to be stronger than the effect from the change in the number of units sold Inelastic demand – inelastic meaning consumers or buyers are not very responsive to the change in price. Conditions that cause demand to be
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This note was uploaded on 10/30/2010 for the course MBA 520 taught by Professor Mr.bill during the Spring '10 term at Ill. Chicago.

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Handout-PriceElasticityofDemand - Price Elasticity of...

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