ECON-221 Lecture Notes - Lecture 11: Unit
Document Summary
It is the percentage change in one variable (ex. quantity) divided by the percentage change in another variable (ex. For a given 1% change in prices, what is the % change in quantity demanded/supplied. Ed = % change in quantity demanded / % change in price. Price elasticity of demand is always nonpositive (- or 0) because demand curves slope down. Percentage change in quantity demanded for a 1% increase in price. Markets with price-responsive demand have elasticities that are larger in magnitude. Markets with less price-responsive demand have elasticities that are smaller in magnitude. When price elasticity of demand is high : relatively elastic flatter curve/more horizontal, relatively small increase in price result in relatively large drops in quantity demanded. When price elasticity of demand is low : relatively inelastic steeper curve/more vertical i , relatively large increases in price result in relatively small drops in quantity demanded.