[ECON 1B03] - Midterm Exam Guide - Ultimate 67 pages long Study Guide!
6 Feb 2017
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ECON 1B03 Full Course Notes
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Measures the responsiveness of quantity demanded or quantity supplied: to changes in price and other determinants. Useful for firms that want to maximize total revenue: selling as much as possible at the highest price possible. Measures how much qd responds to changes in p: denoted as ep. The number that comes out of the equation: tells us how elastic the good is, the larger the coefficient, the more elastic the demand is. Total revenue = price x quantity traded. Demand is not very responsive to p changes: % change in p > % change in qd. Ep < 1: results in a steep demand curve, e. g. Demand is not responsive to p changes at all: % change in p = 0 change in qd. Ep = 0: results in a vertical demand curve, e. g. Demand is very responsive to p changes: % change in p < % change in qd. Ep > 1: results in a flat demand curve, e. g.
