ECON 1000 Lecture Notes - Demand Curve, Inferior Good, Normal Good
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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. 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. elasticity= (horizontal line) Below midpoint: inelastic total revenue: price of good multiplied by the quantity sold. If demand is elastic, a 1% price cut increases quantity sold by more than 1% and total revenue increases.