MARKET 1 Lecture Notes - Lecture 27: Economic Equilibrium, Price Elasticity Of Demand, Demand Curve
Document Summary
How shapes of supply and demand curves matter. A supply shock has different effects if the demand curve has a different shape. Suppose demand has a downward sloping - a shift of the supply curve causes a movement along the demand curve. Suppose demand is a vertical bar (not sensitive to a change in price) so the same amount is demanded whatever the price is. Suppose demand is a horizontal bar (very sensitive to a change in price) if the price increases slightly, consumers stop buying the product a change in price causes a decrease in equilibrium quantity. Elasticity: the percentage change in a variable in response to a given percentage change in another variable. The percentage change in the quantity demanded in response to a given percent- age change in the price: = ( q/q)/ ( p/p). For a linear function: q = a bp and = - b * p/q.
