BU111 Lecture Notes - Lecture 5: Time Horizon, Demand Curve
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Tax policy: what happens if we raise taxes on the richest 1% Answers to all questions depend in part on a price elasticity of demand and/or supply. Proportionally, how much does on factor change as we vary another. Inelastic demand: e < 1 inelastic supply: e < 1. Inelastic demand for pharmaceuticals, elastic demand for travel. Definition of the market rice is a substitute for wheat, there are no substitutes for food. Elasticity of demand for food will be lower than for wheat. Time horizon alternatives may take time to exploit. Demand for gas in the short- term is inelastic, in the long-term, alternatives make it more elastic. Access to the inputs to production supply of beachfront property is inelastic. Time horizon is critical supply of many goods can"t respond in the short-term. Short-term supply of food, apartments, doctors, etc. is inelastic. To calculate the elasticity between two points on a demand curve (q1, p1) and (q2,
