ECON 200 Lecture Notes - Lecture 6: Demand Curve, Normal Good
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ECON 200 Full Course Notes
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Document Summary
Elasticity: how one variable changes in percentage if you increase one percent of another variable. In other words, elasticity concept captures how responsive something is due to changes in another variable: more elastic = more responsive. From here on we will discuss the price elasticity of demand as an absolute value. |ed| = 1, we say the demand is unit-elastic: note: |ed| depends not only on the demand curve but also (cid:838)where you are (cid:839) on the curve. Revenue maximization: revenue is maximized when |ed| = 1, if 0 < |ed| < 1, revenue increases, if |ed| > 1, revenue decreases. Elasticity and linear demand curves: if the demand curve is linear, consumers are more responsive to a given price change when the initial price is high than when it is low. Demand becomes less elastic as we move down the curve: at a point halfway down the linear demand curve, the elasticity equals 1. 0.