01/14/16      Elasticity of Demand:

the measure of consumer reactions to price changes.

Elastic Demand- Demand sensitive to change in price E > 1  

                           - NOT a necessity

                           - Available substitutes

Inelastic Demand- Not very sensitive E<1

                             - Necessity

                             - Few or no substitutes

Unitary Demand- ALWAYS equal (=) to 1

Price Elasticity of Demand- (PED)

1. Quantity (new-old)

2. Price (new-old /old)

3. (%change in quantity demanded / % change in price)

Total Revenue- Total amount of money a firm receives from selling goods and services.

Formula- (price x quantity)

Production Costs-

Fixed Cost- a cost that doesn't change no matter the quantity produced.

                  - Ex. rent, mortgage, insurance, salaries

Variable Cost- a cost which rises/ falls depending upon how much is produced.

Marginal Cost- a cost of producing 1 more unit of a good.