ECON-101 Lecture 5: Econ 101 – Chapter 5
Document Summary
Determinants of elasticity: availability of substitutes. Eggs (inelastic) vs coke (elastic): necessities vs. luxuries. Necessities such as food or medicine (inelastic) Luxury goods such as sailboats (elastic: time horizon. Long run (lr) demands are elastic: share of income spent on the good. If fraction of income spent is small, its. If fraction of income spent is large it is elastic. (car) Change is price isn"t as important in bread as a car. Perfectly inelastic: graph is straight vertical. (medicine) Perfectly elastic: graph is straight horizontal. (competitive firm) Calculating elasticity of demand: % change in quantity demand divided by % change in price. Q over p: % change in quantity demanded is for 1% change in the price of product. Total revenue: money received from producing and selling a product. Price times quantity sold (tr = pxq: affects of price with inelastic goods: quantity isn"t responsive.