ECON 1B03 Lecture 1: ECON 1B03- Week 5 Module 2
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ECON 1B03 Full Course Notes
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If we are given percentage changes in price and the corresponding changes in qd, we use the formula. The price of milk increases by 2% and qd decreases by . 5% It measures the impact of a marginal change in price on quantity demanded. Ep = dq/dp * p/q: this is actually easy to compute, since dq/dp is just the slope of a linear demand curve when demand is in the form q = f(p). In all three examples, we have an elasticity coefficient that has a negative sign: but, remember the law of demand: as ph, qd i. The coefficient will always be a negative number: since we"re smart economists and know this, when we calculate price elasticity, we drop the negative sign (we know it will always be negative). If you spend a large proportion of your budget on a good, demand for that good will tend to be elastic.