ECN 104 Chapter Notes - Chapter 5: Demand Curve, Inferior Good, Normal Good
Document Summary
Elasticity formula (q = quantity p= price): [q2-q1 / (q2+q1 / 2)] / [p2-p1 / (p2+p1 / 2), drop negative sign. Close substitutes are available: for narrowly define goods than broadly defined ones, for luxuries than for necessities. In the long run than in the short run. Perfectly inelastic demand: elasticity = 0, d curve = completely vertical, any change in price will not affect quantity demand. Inelastic demand: elasticity = less than 1, d curve = relatively steep, change in price will have a minuscule change in qd. Unit elastic demand: elasticity = 1, d curve = intermediate slope (proportionate, change in price will have a proportionate change in qd. Elastic demand: elasticity = greater than 1, d curve = relatively flat, change in price will have a significant change in qd. Perfectly elastic demand: elasticity = infinity, d curve = completely horizontal, qd is so sensitive that there is no change in price, a very rare case.