ECON-101 Lecture Notes - Lecture 5: Normal Good, Inferior Good
2 Mar 2016
School
Department
Course
Professor
Document Summary
Learn the meaning of the elasticity of demand. Learn the meaning of the elasticity of supply. Apply the concept of elasticity in three very different markets. Elasticity: a measure of the responsiveness of quantity demanded or quantity supplied to one of its determinant. Price elasticity of demand (ep): the percentage change in quantity demanded divided by the percentage change in price. Single-point formula: gives 2 different answers (unless you are given direction of change in price, *nice to know but not recommended for use because answers may vary. Mid-point formula: (average formula: gets same answer each time, *ignore the negative sign because slopes of demand graphs are negative. Range of ep: (pg. 102: elastic = % qd> % price = numerator is greater than the denominator [greater than 1 (1=100%), unit =% qd =% price = 10%/10% = 1. 3: perfectly inelastic: ep =0, perfectly elastic: ep = infinity. Inelastic = % qd < % price =fraction (less than 1)
