EC 201 Lecture Notes - Lecture 5: Snickers, Demand Curve, Midpoint Method
11 Oct 2016
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Suppose inverse demand is p(qd) = 40-qd and inverse supply is p(qs)=qs-2. Supply and demand increase: remember that with a supply increase we saw quantity increase, and with a demand increase we saw a quantity increase. Thus, if both increase, it must be the case that quantity increases: however, with a supply increase we saw price fall, but with a demand increase we saw a price increase. Is a measure of the responsiveness of buyers and sellers to changes in price or income. Items that do not have ready substitutes and/or are hard to live without will be less sensitive to price changes than other items. In this chapter, we will focus on the idea that some goods respond heavily to prices while other goods do not. If the quantity demanded changes significantly due to a price change, we say the good is elastic.
