Economics 1021A/B Lecture 4: Chapter 4 Elasticity
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ECON 1021A/B Full Course Notes
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It depends on the responsiveness of quantity demanded to a change in its price: responsiveness = sensitivity = elasticity. Price elasticity of demand: a units-free measure of the responsiveness of the quantity demanded of a good to a change in its price, holding all other influences on buying plans constant, general formula: Demand can be inelastic, unit elastic, or elastic, and can range from zero to infinity. At the mid-point of the demand curve, demand is unit elastic. At prices above the mid- point of the demand curve, demand is elastic. At prices below the mid- point of the demand curve, demand is inelastic. The factors that influence the elasticity of demand. The closeness of substitutes: the closer the substitutes for a good or service, the more elastic is the demand for the good or service. Necessities, such as food or housing, generally have inelastic demand. Luxuries, such as exotic vacations, generally have elastic demand.