ECON 201 Lecture Notes - Lecture 4: Tax Incidence, Economic Equilibrium, Demand Curve
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ECON 201 Full Course Notes
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Demand elasticity as a measure of responsiveness. Relationship between total expenditure & demand elasticity. The law of demand states that there is an inverse relationship between p(price) and qd (quantity demanded). This simply means that price and quality move in the opposite direction. Elasticities are all about responsiveness of either quantity demand (qd) or quantity supply (qs). When we want to measure the responsiveness of consumers in the market place, the price elasticity will be measured as a percentage change in qd cause by a percentage in price: Calculation: %change in qd / % change in price. The elasticity is the percentage ratio of these two % demanded. Example: a 10% price increase (positive price change) reduces the quantity demanded by 20% (negative response). = %delta qd = delta q/q = delta q * p. %delat p delta p/p delta p * q. Example: price drops from . 0 to . 0 and the quantity demand goes from 2 to 4.