Step 3 - What determines E L A S T I C I T Y?

As we have seen above it is important to a company to have an idea of the value of the elasticity of demand of its good or service as it will affect what happens to their total revenue as price changes. What should the company aim to do with their price in each of the circumstances below?

Elasticity

Which change in price would increase total revenue??

(Increase or decrease?)

Elastic

Inelastic

If the company wants to estimate the value of the price elasticity of their product, then they need to judge it against the following criteria:

Number of ____________________:

• Strength of ___________________:

Luxuries vs. ___________________:

Percentage of ________________ spent on good:

_____________ to adjust: