•Degree to which changes in a good’s price affect the quantity demanded by consumers

•Exists when a small change in a good’s price causes a major, opposite change in the quantity demanded

1.Product is not a necessity

2.There are readily available substitutes

3.The product’s cost compared to consumers’ income

•Change in a goods price has little impact on the quantity demanded

1.The product is a necessity

2.Few or no substitutes3.Product’s cost small

part of your income

• Total Revenue test – easiest way to measure demand elasticity• Total Revenue Test – called total

receipts• Total income that a business

receives from selling its products

•Drop in business’s total revenue (at a certain price) indicates elastic demand for that product

• Changes in total revenue and changes in price move the same direction the good is inelastic

• Cubs tickets

•Price increase and business’s revenue goes up means the product is inelastic

• SELL GOOD AT HIGHEST POSSIBLE PRICE SO THAT YOU MAKE THE MOST REVENUE