ECON 1B03 Lecture Notes - Lecture 4: Normal Good, Inferior Good, Hyperbola
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ECON 1B03 Full Course Notes
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Measures how responsive qd or qs is to changes in p + other determinants. This knowledge is useful to rms + policymakers whose decisions may affect price + therefore affect qd. Other things being equal, it will want to maximize total revenue. Knowing price elasticity of demand tells rm whether it should raise or lower its price. Tr : price times the quantity traded. Measure of how much quantity demanded of good responds to change in price of that good. Price elasticity of demand is computed as percentage change in quantity demanded divided by percentage change in price. Size of coef cient, ep, tell us how elastic the good is how responsive demand is to change in price. Larger the coef cient, the more responsive is demand to change in price of good. Elasticity will vary because how people respond to price changes will vary so we can de ne different types of elasticity.