Alexander's AP Macroeconomics Blog

Elasticity of Demand

This is a measure of how consumers react to a change in price.

Elastic Demand 

1. Demand that is very sensitive to a ∆ in price, and E > 1.
2. Examples: Soda, Candy, Fur Coat, Steak
3. Not a necessity, and there are substitutes.

Inelastic Demand

1. Demand that is not very sensitive to a ∆ in price, and E < 1. 
2. Examples: Salt, Milk, Insulin, Gas
3. Product is a necessity, there are few substitutes, people will buy no matter what. 

Unitary Elastic

1. Always E = 1.

Problem Set:

The price of Moo iced coffee drink has risen from $1.50 to $1.70 per 500ml container. Sales at your local corner store of "Moo" fall from 500 containers per week to 300 containers per week.