The price elasticity of demand in economics, what does it mean????

Question

So I am taking entry level econ in college and am having difficulty understanding the "simple" concept of elasticity. What are the types, the implications or whatever. I mean in SIMPLE LANGUAGE please. because my 86 year old professor cant seem to break it down for a dumb person like me to be able to get it... so please help me out... what is the basic concept that i am just finding hard to grab... thanx

Answer 1

Elasticity of demand is a measure of how flexible consumers are when prices are changed. If there is a price increase, a consumer with an inelastic demand will not change their quantity purchased by that much (Land is generally considered an inelastic market). One with an elastic demand will change their quantity purchased more drastically (at some price level, gas is elastic, people substitute out to public transportation and different technologies so they spend less on gas).

Notice that I said "at some price level" elasticity is not usually constant. Only in the simplified models of Lower Div econ are they ever really constant.

Answer 2

Alright. PED is basically a measure of how steep the gradient of the demand curve is. It is a measure of the degree of responsiveness of the quantity demanded of a good to a change in the price level of a good, ceteris paribus. If PED is inelastic, it means that the dd curve is steep. As such, any increase in price will lead to a small drop in quantity demanded of the good, no?As such, we say that an increase in price has led to a less than proportional fall in quantity demanded of the good. This leads to an increase in revenue (quantity x price) And vice-versa. Ain't gonna feed you anything more, but i do hope you understand what i'm trying to say. If not, try drawing out a diagram and toy with the gradient/steepness of the demand curve. Adjust the prices for each of them and watch if the quantity falls more than the increase in prices, or less than.

Answer 3

Elasticity just describes the slope of the curve.

Price elasticity of demand is the starting point. If a change in price creates a huge change in the amount demanded, then it is elastic. If a change in price creates little change in demand, then it is price inelastic. A business could use the information to predict their price changing options. Elastic - raise the price, and quantity demanded doesn't change much, so hike them prices.

Answer 4

Don't feel bad. Elasticity can actually be quite confusing.

It's also too much for this space. So here:

http://en.wikipedia.org/wiki/Price_elasticity_of_demand

Answer 5

Ever read up on "price' and "demand" theory?