ECN 104 Lecture Notes - Lecture 4: Allocative Efficiency, Normal Good, Luxury Goods
Document Summary
Law of demand says: an increase in price causes a decrease in quantity demanded (vice- versa, elasticity gives us a measure of quantity demanded"s responsiveness to change in price. Price elasticity of demand coefficient: when qd responds strongly to a change in p, demand is elastic (vice-versa, ed= % change in quantity demanded of product x. % change in the price of product x: use percentages, unit free measure, compare responsiveness across products, eliminate the minus sign, easier to compare. Price elasticity along a linear demand curve: for all straight-line and most other demand curves, more elastic toward upper left, more inelastic toward lower right. If beef rises they might not reduce their purchases very much, but could eventually switch to chicken. Es= % change in quantity supplied of product x. % change in the price of product x: the main determinant of es is the amount of time producers have for responding to a change in product price.