ECO 1104 Lecture Notes - Lecture 5: Breakfast Cereal, Normal Good, Demand Curve
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It is the average of those two values: price elasticity of demand = (q1-q2)/[(q2+q1)/2]/(p2- P1)/[(p2+p1)/2: using the midpoint method means that it does not matter which value you use as the start value" and which as the end value" you get the same answer either way. Determinants of demand price elasticity: to learn about the determinants of the price elasticity of demand, we will work through four non-numerical examples. Insulin versus caribbean cruises: for which does quantity demanded drop most and why, to millions of diabetics, insulin in necessary, a rise in its price would cause little or not decrease in demand, a cruise if a luxury. If its price rises, some people will forego it, so its quantity demanded will fall the most: lesson: price elasticity is higher for luxuries than for necessities. Example four: gasoline in the short run versus the long run.