Elasticity

This week in economics we continued learning about the relationship of price and quantity demanded. We further learned about elasticity of demand. We learned that you have to take the percentage change in quantity and divide it by the percentage change in price. Then if that number is less than one, the change is elastic. If it is greater than one it is elastic. We also learned of a few examples that represent elastic demand and inelastic demand. Insulin is inelastic because no matter the price the same amount of people who need it will buy it. Movie tickets are elastic. As the prices go up or down there is a big change in the amount of tickets sold. This is important to daily life. Many businesses look at elasticity to see how they should change their prices to yield the most revenue. They use the Total Revenue Test. They look at the quantity demanded at the original price and how much money was made and compare it to the quantity demanded at the new price and how much money was made. They then will choose the price that makes the most revenue.