ECO 304K Lecture Notes - Lecture 4: Inferior Good, Demand Curve, Normal Good
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ECO 304K Full Course Notes
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Total spending (total revenue) = the product of price times quantity. Price goes up but decrease in quantity is small inelastic demand. Price goes up but quantity drops dramatically elastic demand. Elasticity is the responsiveness of quantity demanded to the price. When is demand elastic or inelastic: elastic: Elasticity equals the absolute value of the percent change in quantity demanded over the percent change in price. If elasticity is greater than one, demand is elastic. If elasticity is less than one, demand is inelastic. If elasticity is equal to one, demand is unit elastic. Price goes down and quantity stays the same. If elastic is equal to zero, demand is perfectly inelastic. Is elasticity is infinite, demand is perfectly inelastic. Flatter demand curve means higher elasticity but elasticity does not equal slope. Own price elasticity of demand: percent change in quantity demanded over the percent change in price is less than zero.