Class Notes (810,889)
York University (33,698)
Economics (1,530)
ECON 1000 (462)
Lecture

# Econ 4.docx

3 Pages
42 Views

School
York University
Department
Economics
Course
ECON 1000
Professor
George Georgopoulos
Semester
Fall

Description
Ch. 4: Elasticity Elasticity of demand  price elasticity of demand: unit-free measure of the responsiveness of the quantity demanded of a good to a change in its price when all other influences on buying plans remain the same ⁄ o ⁄  Percentages and proportions  unit-free measure  magnitude, no positive/negative values  Elastic demand: percentage change in quantity demanded is greater than the percentage change in price. elasticity > 1  Inelastic demand: percentage change in quantity demanded is less than the percentage change in price. elasticity = between 0 and 1  Perfectly inelastic demand: quantity demanded remains constant when price changes. elasticity = 0 (vertical line)  Unit elastic demand: percentage change in quantity demanded equals the percentage change in price. elasticity = 1  Perfectly elastic demand: quantity demanded changes by an infinitely large percentage in response to a tiny price change. elastic∞ty(horizontal line)  Elasticity along a straight-line demand curve  at midpoint: unit elastic  above midpoint: elastic  below midpoint: inelastic  total revenue: price of good multiplied by the quantity sold o If demand is elastic, a 1% price cut increases quantity sold by more than 1% and total revenue increases o If demand is inelastic, a 1% price cut increases quantity sold by less than 1% and total revenue decreases o If demand is unit elastic, a 1% price cut increases quantity sold by 1% and total revenue does not change  total revenue test: method of estimating the price elasticity of demand by observing the change in total revenue that results from a change in the price  Expenditures o If your demand is elastic, a 1% price cut increases the quantity you buy by more than 1% and your expenditures on the item increases o If you demand is inelastic, a 1% price cut increases the quantity you buy by less than 1% and your expenditures on the item decreases o If your demand is unit elastic a 1% price cut increases the quantity you buy by 1% and your expenditures on the item does not change  Factors that influence the elasticity of demand o closeness of substitutes  the closer the substitutes for a good/service, the more elastic the demand is  necessities are inelastic  luxuries are elastic o proportion of income spent on the good  the greater the proportion of income spent
More Less

Related notes for ECON 1000

OR

Don't have an account?

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Join to view

OR

By registering, I agree to the Terms and Privacy Policies
Just a few more details

So we can recommend you notes for your school.