ECON 201 Lecture Notes - Lecture 3: Demand Curve, Economic Surplus, Leaky Bucket

• School: Cal Poly
• Department: Economics
• Course: ECON 201
• Professor: Michael Marlow

Document Summary

Elastic: responsive to price change, as price drops you want a lot more of the product: raise price: lose revenue, quantity change larger than price change (relatively) Inelastic: unresponsive to price change, as price drops you buy a little more but not that much: raise price: gain revenue, quantity change is smaller than price change (relatively) We can directly compare price elasticities without conversions. Perfectly inelastic: e=0, a vertical line, only possible in theory, eventually obeys the law of demand, could have an inelastic section of the demand curve, would always have a tail. There are differences in elasticity between people and between generations. # of substitutes: greater the #, the more elastic. Pepsi is more elastic than soft drinks. Expenditure size in budget: the smaller, the less elastic, cars are more elastic than toothpicks (??) Whether good is a necessity or luxury: the more necessary, the less elastic, more luxurious, the more elastic.