ECON-1020 Chapter Notes - Chapter 5: Price Elasticity Of Demand, Demand Curve, Luxury Goods
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Elasticity is a measure of the sensitivity of changes in one variable to changes in another. Inelastic demand does not mean that quantity demanded is totally insensitive to changes in price. Elastic demand: if a change in price causes a relatively large change in quantity demanded. % change = ( (ending value - beginning value) beginning value ) x 100. Elasticity of demand = (% quantity demanded) (% price) Inelastic demand: if a change in price causes only a small change in quantity demanded. If % quantity demanded < % price. The greater number of substitutes, the greater the elasticity. Whether or not a good is a necessity. If a good is a necessity, it has few or no substitutes, so very little elasticity. If amount spent on a good makes up a large part of one"s income, then that good will be more elastic, compared to a good that one spends little money on.