ECO 2023 Lecture Notes - Lecture 17: Illinois Central Railroad, Marginal Utility, Indifference Curve
Document Summary
Percentage change in quantity divided by percentage change in (% change q/% change p) The price elasticity demand is often favored over the slope of the demand. The price elasticity provides a better means for making cross-product comparisons (e. g. , between goods x and y) when the prices of the products differ. The price elasticity is not sensitive to the units in which price and quantity demanded are measured. If the price elasticity of demand for a good at the current price is ed = -2. 5, then a: 1 percent increase in price will lead to a 2. 5 percent decrease in quantity demanded. The more narrowly a product is defined (for example, high-octane gasoline versus gasoline in general): the larger the number of substitutes that exist and the larger the price elasticity of demand. Suppose an individuals demand for a good is described by the demand function p = 120 - 2q.