ECON 200 Lecture Notes - Lecture 5: Relative Price
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ECON 200 Full Course Notes
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Example 2- price of gasoline in years 1983, 2004, 2005, 2013, 2016, and 2018. Relative price = takes the price of the product/ cpi a. ) In 2004, the dollar price of gasoline was higher than in 1983 (1. 79 as compared to 1. 20) Applications of demand: intro to the concept of elasticity and the price elasticity of. Ed = % change in q demanded/ % change in price. Ed = dq/ q/ dp/ p or dq/dp (p/q) ---- slope multiplied by price over quantity to determine elasticity. If the absolute value of elasticity is better than 1, demand is elastic ! If the absolute value of e is less than 1, demand is inelastic ! If the the demand is inelastic and you raise the price of the product, the revenue goes up. A seller increases his product by 10% and the quantity sold falls by 20% . Ed = % change in q demanded/ % change in p.
