ECN 104 Lecture Notes - Lecture 4: Antivenom, Demand Curve

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Elasticity measures how responsive one variable is to changes to another variable. There are 2 extreme methods of price elasticity of demand: perfectly inelastic- when the quantity demanded does not respond at all to the changes of the price. The quantity demanded is unaffected by the price (eg: when you need antivenom, you need 1000 doses, the price doesn"t matter for the quantity) The demand curve is a horizontal line. A price effect- after a price increases, each unit is sold at a higher price, which raises revenue. A quantity effect- after a price increases, less units are sold which decreases the quantity sold. If demand for a good is elastic, then an increase in the price reduces total revenue. If demand for a good is inelastic, then an increase in the price increases total revenue. If demand for a good is unit elastic, then an increase in the price keeps the total revenue the same.

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