ECON 1050 Lecture Notes - Inferior Good, Normal Good, Economic Surplus
20 May 2014
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Buyers will offer sellers more money to get what they want. How does the quantity demanded respond to changes in price. Calculated as: ped = (percent change in quantity demanded)/percent change in price (new quantity demanded - old quantity demanded)/(old quantity demanded)/(new price - old price)/(old price) Firms want to set the price where the ped > 1. An inelastic ped has a steep demand curve. An elastic ped has a shallow demand curve. These are important to firms facing growth or recessions. Pes = % change in quantity supplied/% change in price. Demand elasticity responds to: - change in price. Supply elasticity responds to: - change in price. While at the equilibrium price, the quantity demanded = the quantity supplied. Sometimes governments want the prices to be higher and so create a price floor. The problem of excess supply is addressed by either quotas or buffer stock schemes where surplus production is stored.
