Week 5 unit 4 price elasticity of demand. Elasticity: measures how responsive qd or qs is to changes in price and other determinants. If a firm wants to maximize its profit, elasticity will tell a firm whether to raise or lower its price (assuming it can set price) This is useful to firms and policy makers whose decisions may affect price and therefore qd. If p tr : dentist visit, change in price does not change quantity demanded whatsoever, demand is not responsive to price change, ep = 0, vertical demand curve, heart medicine. Elastic demand: change in price leads to a proportionally larger change in quantity demanded, demand is very responsive to price change, ep > 1, fairly flat demand curve, most manufactured goods. If p changes, tr will not: wine in the us. A percentage change in qd = (qd2 qd1)/qd1. A percentage change in p = (p2 p1)/p1.