ECO101H1 Lecture Notes - Demand Curve, European Route E20, Inferior Good

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20 Jan 2011
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ECO101H1 Full Course Notes
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Topic 4 j elasticity of demand (week 3-4 sep 29th j oct 4th) You own the only spring in town, which produces sparkling water that you sell for a bottle; You have no costs, so that your profit equals your total revenue (price x quantity sold); Q1: if you raise your price: consumer who continues to buy your water would pay more; you earns more money per bottle; Revenue = price x quantity; price goes up while quantity sold goes down. Elasticity of demand measures the responsiveness of quantity demanded to a change in price. Formula: elasticity of demand = % change in quantity demanded = %qd. % change in price %p (due to the law of downward-sloping demand, the elasticity will be negative; just ignore the negative sign. : mid-point convention (calculating %change) %qd = qd (change in quantity demanded over average quantity demanded); %p = p (change in price over average price)

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