ENDURING UNDERSTANDING

MKT-3
Individuals and firms respond to incentives and face constraints.

LEARNING OBJECTIVE ESSENTIAL KNOWLEDGE
  • MKT-3.E
    a. Define measures of elasticity.
    b. Explain (using graphs where appropriate) measures of elasticity and the impact of a given price change on total revenue or total expenditure.
    c. Calculate (using data from a graph or a table as appropriate) measures of elasticity.
ESSENTIAL KNOWLEDGE
  • MKT-3.E.1
    Economists use the concept of elasticity to measure the magnitude of percentage changes in quantity owing to any given changes in the own-price, income, and prices of related goods.
  • MKT-3.E.2
    Price elasticity of demand is measured by the percentage change in quantity demanded divided by the percentage change in price or the responsiveness of the quantity demanded to changes in price. Elasticity varies along a linear demand curve, meaning slope is not elasticity.
  • MKT-3.E.3
    Ranges of values of elasticity of demand are described as elastic or inelastic with the separating benchmark being a magnitude of 1, where the change in the price and the change in the quantity demanded are proportional.
    a. When the magnitude of the value of elasticity is greater than 1, the demand is described as being elastic with respect to that price in the range of the given change.
    b. When the magnitude of the value of elasticity is less than 1, the demand is described as being inelastic with respect to that price in the range of the given change.
    c. When the magnitude of the value of elasticity is equal to 1, the demand is described as being unit elastic with respect to that price in the range of the given change.
  • MKT-3.E.4
    The price elasticity of demand depends on certain factors such as the availability of substitutes.
  • MKT-3.E.5
    The impact of a given price change on total revenue or total expenditure will depend on whether demand is elastic, inelastic, or unit elastic.