ECO101H1 Lecture 5: Topic 3 Elasticity and Its Applications II

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ECO101H1 Full Course Notes
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Eco100y1 lecture #6 topic 3: elasticity and its applications i. It is important to differentiate between slope and elasticity. The slope of a linear demand curve is constant, but its elasticity is not. Slope = rate of change, while elasticity = ratio of percentage changes. As we move to higher prices, elasticity becomes greater and greater. If p is increased, this means more revenue for each unit sold, but due to the law of demand less units will be sold. Which effect is bigger depends on the price elasticity of demand. If p is elastic, the elasticity of demand > 1 because the percent change in q > the percent change in p (numerator > denominator so ratio > 1) The negative change in q is greater than the positive change in p so it decreases the revenue. Selling websites: at demand is 12, at demand is 8.

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