INTERPRETATION OF ELASTICITIES
Elasticity of demand measures how much the quantity demanded of a good or service changes in response to a change in a factor, most commonly price.
Perfectly inelastic
Inelastic
Price
Price
Perfectly elastic
Elastic
Quantitiy
Quantitiy
ELASTIC DEMAND CURVE
An elastic demand curve shows that a good’s quantity demanded is highly responsive to a change in price.
What happened to producer revenue?
What happened to consumer surplus?
Price
Quantitiy
INELASTIC DEMAND CURVE
An inelastic demand curve is a steeply sloped or vertical line on a graph, indicating that the quantity demanded changes very little despite changes in price.
What happened to producer revenue?
Price
What happened to consumer surplus?
Quantitiy
INCOME ELASTICITY OF DEMAND
Income elasticity of demand measures how a product’s quantity demanded changes in response to a change in consumer income.
Luxuries
Necessities
CROSS-PRICE ELASTICITY OF DEMAND
Cross-price elasticity of demand measures how the quantity demanded of one good changes in response to a price change in another good.
SUBSTITUTES
Tea
Coffee
COMPLIMENTS
Bun
Patty
What happened to the Producer Revenue?
A cut in price brings about a larger increase in the quantity demanded, and producer revenue increases.
PRICE
QUANTITY
PRODUCER REVENUE
What happened to the Producer Revenue?
A cut in price brings about a larger increase in the quantity demanded, and producer revenue increases.
PRICE
QUANTITY
PRODUCER REVENUE
VS
Inelastic Demand Curve
Elastic Demand Curve
Cutting the Price - Revenue
Cutting the Price - Revenue
Increase the price - Revenue
Increase the price - Revenue
Interpreting Cross-Price Elasticity on Demand
Interpreting Income Elasticity of Demand
Chapter 5: Measurement & Interpretation of Elasticities
AMY SCHNEIDER
Created on October 31, 2025
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Transcript
INTERPRETATION OF ELASTICITIES
Elasticity of demand measures how much the quantity demanded of a good or service changes in response to a change in a factor, most commonly price.
Perfectly inelastic
Inelastic
Price
Price
Perfectly elastic
Elastic
Quantitiy
Quantitiy
ELASTIC DEMAND CURVE
An elastic demand curve shows that a good’s quantity demanded is highly responsive to a change in price.
What happened to producer revenue?
What happened to consumer surplus?
Price
Quantitiy
INELASTIC DEMAND CURVE
An inelastic demand curve is a steeply sloped or vertical line on a graph, indicating that the quantity demanded changes very little despite changes in price.
What happened to producer revenue?
Price
What happened to consumer surplus?
Quantitiy
INCOME ELASTICITY OF DEMAND
Income elasticity of demand measures how a product’s quantity demanded changes in response to a change in consumer income.
Luxuries
Necessities
CROSS-PRICE ELASTICITY OF DEMAND
Cross-price elasticity of demand measures how the quantity demanded of one good changes in response to a price change in another good.
SUBSTITUTES
Tea
Coffee
COMPLIMENTS
Bun
Patty
What happened to the Producer Revenue?
A cut in price brings about a larger increase in the quantity demanded, and producer revenue increases.
PRICE
QUANTITY
PRODUCER REVENUE
What happened to the Producer Revenue?
A cut in price brings about a larger increase in the quantity demanded, and producer revenue increases.
PRICE
QUANTITY
PRODUCER REVENUE
VS
Inelastic Demand Curve
Elastic Demand Curve
Cutting the Price - Revenue
Cutting the Price - Revenue
Increase the price - Revenue
Increase the price - Revenue
Interpreting Cross-Price Elasticity on Demand
Interpreting Income Elasticity of Demand