Ecomomics: Elasticity

To find the price elasticity of demand, you have to take the average of two prices and the two quantities over the range.
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             There are three types of price elasticity ranges. There is elastic demand, inelastic demand, and unit elastic demand. A demand relationship where a percentage change in price will result a less-than proportionate percentage change in quantity demanded is known as inelastic demand. Elastic demand is known as a demand relationship where a percentage change in price will result in a larger percentage change in quantity demanded. Lastly there is the unit elastic demand, which is a demand relationship in which the quantity demanded changes exactly in correspondence with change in price. These three ranges of price elasticity, is based on whether a one percent change in price elicits more or less than a one percent change in quantity demanded. Goods have an elastic demand only when the price elasticity of demand is great than one. A good that has exactly a one percent change is considered unit elastic of demand, and when a percentage change in price is less than one percent it is inelastic demand.
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             There is a strong and direct connection between the price elasticity of demand and total revenues of a firm. If demand is elastic, the percent change in quantity will exceed the percent change in price and total revenue will move in the same direction as quantity. But if demand is inelastic, the percent change in quantity will be smaller than the percent change in price and total revenue will move in the same direction as price. If a product has elastic demand (such as a holiday), in order to increase total revenue (price x quantity) the firm must lower their prices (opposite direction to total revenue). If the product has inelastic demand (such as cigarettes), in order to increase total revenue the firm must increase its price (same direction as total revenue).