(1-13-16) Price of Elasticity

Price of Elasticity (PED)

Elasticity of demand-Measure of how consumers react to a change in price -(taking a stab at things)

Elastic demand-demand that is very sensitive to a change in price E>1 the product is not a necessity, and their are available substitutes (cookies)

InElastic demand-Is not very sensitive to a change in price E<1 the product is a necessity, their are few to no substitutes, people will buy no matter what (water)

Unit/Unitary elastic-E=1

-Ex:Elastic demand - Soda,steaks,candy,Fur coats

-Ex;Inelastic demand - Gas,Salt,Insulin/Medication,Milk

Price of Elasticity of Demand (PED)

Step 1: Quantity

New Quantity-Old Quantity/old quantity

Step 2: Price

New Price- Old Price/ old price

Step 3: PED

%▲  in quantity demanded/%▲ in price = |PED|

Total Revenue-Total amount of  money a firm receives from selling goods and services TR=P(price)xQ(Quantity)

Fixed Cost-a cost that does not change no matter, how much is produced 

Ex:Rent, Mortgage,Insurance,Salaries

Variable Cost-a cost that rises or falls depending upon how much is produced

Ex: Electricity

Marginal Cost- the cost of producing one more unit of a good

Formula's

TFC + TVC = TC

AFC + AVC = ATC

TFC/Q = AFC

TVC/Q = AVC

TC/Q = ATC

TFC = AFC x Q

TVC = AVC x Q

MC = new TC - old TC

Key:

Q- Quantity

TFC-Total Fixed Cost

TVC- Total Variable Cost

TC- Total Cost

MC- Marginal Cost

AFC- Average Fixed Cost

AVC- Average Variable Cost

ATC- Average Total Cost