Summary

• The price elasticity of demand measures how much tin- quantity demanded responds to changes in the price- Demand tends to be more elastic if close substitutes are available, if the good is a luxury rather than a necessity, if the market is narmwly defined, or if buyers have substantial time lo react to a price change.

• The price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. If quantity demanded moves proportionately less than the price, then the elasticity is less than 1, and demand is said to be inelastic. If quantity demanded moves proportionately more than the price, then the elasticity is greater than 1, and demand is said to be elastic.

• Total revenue, the total amount paid for a good, equals the price of the good times the quantity 5i.ild. For inelastic demand curves, total revenue rises as price rises. For elastic demand curves, total revenue falls as price rises.

• The income elasticity of demand measures how much the quantity demanded responds to change» in consumers' income. The cross-price elasticity of demand measures how much the quantity- demanded of one good responds to changes in the price of another good.

• The price elasticity of supply measures how much tlx' quantity supplied responds to changes in the price. This elasticity often depends on the

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