01:960:211 Lecture 5: Microeconomics Ch.5 Notes spring 2016
19 May 2016
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Price elasticity of demand: a measure of the extent to which the quantity demanded of a good changes when the price of the good changes. To determine the elasticity, compare the percentage change in quantity demanded with the percentage change in price. Midpoint method: used to calculate the percent change in price, divide the change in price by the average price and multiply by 100. Therefore, comparing percentages uses absolute value of the value. Demand is elastic if the percentage change in quantity demanded exceeds percentage change in price. Demand is unit elastic if the percentage change in quantity demanded equals the percentage change in price. Demand is inelastic if the percentage change in the quantity demanded is less than the percentage change in price. Demand is perfectly elastic if the quantity demanded changes by a large percentage in response to an almost zero percentage change in price.
