Micro Foundations · intro
What moves on the Price Elasticity of Demand & Supply diagram
Closer substitutes make buyers more price-responsive, flattening the demand curve and raising price elasticityelasticityHow strongly one variable responds to another, usually quantity's percentage response to a price change. of demand.
Watch the slope of the demand curve, not just its position: slope is what elasticityelasticityHow strongly one variable responds to another, usually quantity's percentage response to a price change. looks like on a diagram.
Three competing brands enter the market, so buyers now have close substitutes.
Demand flattens. A small price rise now costs a large chunk of quantity sold.
Flatter demand means more elastic demand, and it means a price rise will cut total revenue.
Examiners ask this as: elastic demand, flatter demand, substitutes available, competition, price sensitive.
Other scenarios on Price Elasticity of Demand & Supply