ECON 2210 Lecture : Elasticity.docx
Document Summary
Elasticity is a percentage change of a dependent variable due to a percentage change of an independent variable. Quantity demanded depends on price (not the other way around) Quantity demanded is the dependent variable and price is the independent. Own price elasticity tells us how total revenue and price move together. Demand for a good is elastic when total revenue and price move in opposite directions. A fall in price, leading to a large change in quantity demanded leads to an increase in total revenue. Demand is inelastic, total revenue and price move in the same direction. Rise in price leads to small fall in quantity demanded, leading to increase in revenue. When income changes, it leads to a shift or change in demand which leads to a change in the quantity demanded for any given price. Measuring income elasticity of the demand is the same as measuring own price elasticity.