ECON 040 Lecture Notes - Lecture 21: Shortage, Economic Equilibrium, Apple Juice
22 Oct 2020
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Document Summary
Governments and firms measure the responsiveness of the quantity demanded of a given good to changes in its price to have a better understanding of the markets they are interacting with. Price elasticity of demand: the price elasticity of demand captures the percentage change in quantity demanded resulting from a very small percentage change in price. Where the percentage change in price ( p/pa) is suitably small (around 1%). It should be noted the price elasticity of demand is almost always negative. This is due to the fact that price and quantity tend to move in opposite directions due to the law of demand. Elastic if the price elasticity is greater than 1. Unit elastic if the price elasticity is equal to 1. Inelastic if the price elasticity is less than 1. What factors make demand more or less elastic: availability of substitutes: the larger the number of substitutes, the more elastic demand tends to be.
