LEARNING OBJECTIVES Explain the concept of price elasticity of demand and its calculation Explain what it means for demand to be price inelastic, unit price elastic, price elastic, perfectly price inelastic, and perfectly price elastic Explain how and why the value of the price elasticity of demand changes along a linear demand curve Understand the relationship between total revenue and price elasticity of demand Discuss the determinants of price elasticity of demand We know from the law of demand how the quantity demanded will respond to a price change: it will change in the opposite direction But how much will it change? It seems reasonable to expect, for example, that a 10% change in the price charged for a visit to the doctor would yield a different percentage change in quantity demanded than a 10% change in the price of a Ford Mustang But how much is this difference? To show how responsive quantity demanded is to a change in price, we apply the concept of elasticity The price elasticity of demand for a good or service, eD, is the percentage change in quantity demanded of a particular good or service divided by the percentage change in the price of that good or service, all other things unchanged Thus we can write Equation 5.2 eD = % change in quantity demanded % change in price Attributed to Libby Rittenberg and Timothy Tregarthen Saylor URL: http://www.saylor.org/books/ Saylor.org 232