ECON 212 Lecture Notes - Lecture 5: Demand Curve, Determinant
Document Summary
Elasticity: measure of the responsiveness of quantity demanded or quantity supplied, to change in one of its demands. Price elasticity of demand: how much the quantity demanded of a good responds to a change in the price of that good, percentage change in quantity demanded divided by the percentage change in price. Elastic demand: quantity demanded responds substantially to changes in price. Inelastic demand: quantity demanded responds only slightly to changes in price. Determinants of price elasticity of demand: availability of close substitutes. Goods with close substitutes: more elastic demand: necessities vs. luxuries. Luxuries: elastic demand: definition of the market. Narrowly defined markets: more elastic demand: time horizon. Demand is more elastic over longer time horizons: computing the price elasticity of demand. Percentage change in quantity demanded divided by percentage change in price. Use absolute value (drop the minus sign) Variety of demand curves: demand is elastic. Price elasticity of demand > 1: demand is inelastic.