EC120 Lecture Notes - Lecture 5: Midpoint Method, West Bank Areas In The Oslo Ii Accord, Demand Curve
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Elasticity is a measure of how much buyers and sellers respond to changes in market conditions. Elasticity: a measure of the responsiveness of quantity demanded or quantity supplied to one of its determinants. Easy to substitute= more elastic: necessities versus luxuries, definition of the market, time horizon. Example: suppose that a 10% increase in the price of an ice-cream cone causes the amount of ice cream you buy to fall by 20% In this example, the elasticity is 2, reflecting that the change in the quantity demanded is proportionately twice as large as the change in price. Because the quantity demanded of a good is negatively related to its price, the percentage change in the quantity will always have the opposite sign as the percentage change in price. The percentage change in price is a positive 10 percent (reflecting an increase), and the percentage change in quantity demanded is a negative 20% (reflecting a decrease)