Elasticity of Demand

• Elasticity of Demand - Measure of consumers' reaction to price changes
• Elastic - Sensitive demand from price change; E > 1; Not a necessity, some substitutes
• Ex: sodas, steaks, candy, fur coats 
• Inelasic - Demand not vulnerable to price change; E < 1; necessary product; few to no substitutes; always bought
• Ex: Insulin/Medicine, Salt, Gas, Milk
• Unit/ary - E = 1

Calculation

1. Quantity - (New Q - Old Q) / Old Q
2. Price - (New $ - Old $) / Old $
3. PED - % change Q dem./ % change $ = |PED|