ECON-UA 2 Lecture Notes - Lecture 5: Normal Good
Document Summary
Econ-ua 2 - introduction to microeconomics - lectures 5/6: elasticity. Price elasticity of demand (ed) is the sensitivity of quantity demanded to price. Percentage change in quantity demanded (qd) caused by a percent change in price (p) Greater the elasticity value, the more sensitive quantity demanded is to price. Calculate percentage change by using the midpoint formula. %changep = change in price/ average price. Inelastic demand: ed between 0 and 1. When price goes up, quantity goes down. Inelastic: tr and p go in the same direction. Elastic: tr and p go in opposite directions. Availability of substitutes: demand is more elastic when close substitutes are available. Necessities vs luxuries: necessities have less elastic demand. Importance in buyers" budgets: when spending on a good makes up a larger proportion of families" budgets, demand tends to be more elastic. Time horizon: demand tends to be more elastic in the long run.