ECON 1201 Lecture Notes - Lecture 9: Demand Curve
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A demand curve is elastic when an increase in price reduces the quantity demanded a lot (and vice versa). When the same increase in price reduces quantity demanded just a little, then the demand curve is inelastic. Ex. even for ambulance rides: we know there is an inverse relationship between price and quantity demanded. The more responsive quantity demanded is to change in price, the more elastic is the demand curve. If two linear demand (or supply) curves run through a common point, then at any given quantity, the curve that if flatter is more elastic. Price elasticity of demand = the percentage change in quantity demanded divided by the percentage change in price. If the price of oil increases by 10% and the quantity demanded falls. 5%, then the price elasticity of demand for oil is: -5% / 10% = -0. 5. There is a problem: our percent change calculation depends on our choice of starting point.