23115 Lecture Notes - Lecture 5: Margarine, Demand Curve
Document Summary
Elasticity is a measure of how much buyers and sellers respond to changes in market conditions. Quantity demanded responds more in the long run than it does in the short run. 10 per cent increase in petrol prices reduces petrol consumptions by about 2. 5 per cent after a year and 6 per cent after 6 years. Elasticity is a measure of the responsiveness of quantity demanded or quantity supplied to one of its determinants. Demand for a good is said to be elastic if the quantity demanded responds substantially to changes in the price. Demand is said to be inelastic if the quantity demanded responds slightly to changes in the price. Determinants of price elasticity of demand: availability of close substitutes: goods with close substitutes tend to have more elastic demand because it is easier for consumers to switch from that good to others. For example, butter and margarine are easily substitutable.
