Price Elasticity of Demand

• Price elasticity of demand is how responsive demand is to the price changing.

• Formula = percentage change in the quantity demanded / the percentage change in price

• If the number is lower than 1, it is inelastic.

• If the number is higher than one, it is elastic.

• Whether it is a negative number of not is irrelevant.

Income Elasticity of Demand

• Shows the correlation between the quantity demand and the customer’s incomes.

• Formula = percentage change in the quantity demanded / percentage change in consumer income.

• It is inelastic if the percentage change in quantity demanded is less than % change in income.

• It is elastic if the percentage change in quantity demanded is more than the percentage change in income.

• Above one = elastic. Below one = inelastic.

• Means that with an increase in income, demand falls.

• For example, less people are likely to buy own brand bread when income increases, they are more likely to buy something such as Warburtons.

• Increase in come causes an increase in demand.

• Normal goods can be income elastic or inelastic.

• Increase of income will result in an increase in demand.