ECON 101 Lecture Notes - Lecture 6: Demand Curve, Substitute Good
Document Summary
Economists measure responses in the market using various elasticities. = percent change in the quantity demanded / percent change in the price. Own price elasticity of demand will typically be negative. Will get a different elasticity if considering the change in reverse. Avoids the problem by computing the percentage change relative to the average value rather than relative to the initial value. Perfectly inelastic demand: price of demand = 0. Perfectly elastic demand: price of demand = -infinity. The quantity demanded does not change with a change in the price. The quantity demanded switches from 0 to infinity with a change in the price. Unit-elastic demand: price elasticity of demand equals -1. Knowing whether a price elasticity is greater or less than -1 tells us how a price change impacts the total revenues of the seller. Total revenues = price x quantity sold. If price increases, two things happen impacting total revenues.
