ECO100Y5 Lecture Notes - Lecture 6: Ceteris Paribus, Normal Good, Demand Curve
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ECO100Y5 Full Course Notes
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Elasticity: a measure of the responsiveness of one economic variable to a change in another economic variable. How responsive quantity demanded is to a change in price, ceteris paribus. Decrease time horizon, decrease elasticity: more elastic in the long-term than in the short-term (ex. If necessity, less elastic: can"t change demand of water much, but television can change - not necessary. Broadly defined market = lower elasticity: for nike"s specifically, more elastic. Share of a good in a consumer"s budget. Use midpoint of p1,q1 and p2, q2 as reference point. Total expenditure = total revenue = p x q. If price is rising, quantity demanded is falling. More demand elastic, decrease in total revenue. Elasticity along a linear demand curve paper (6) Total revenue maximized at mid-point of demand curve (at qmax/2) Higher elasticity = total revenue decrease when price increase. Low elasticity = total revenue increase when price increase. How responsive quantity supplied is to changes in price.