ECON 1P91 Study Guide - Midterm Guide: Midpoint Method, Final Good, Price Ceiling

• School: Brock University
• Department: Economics
• Course: ECON 1P91
• Professor: Cornellius Christian

Document Summary

Note: if ed = 0, then demand is vertical and perfectly inelastic. Where if ed = -infinity, then demand is horizontal and perfectly elastic. When price changes, revenue stays the same: elasticity of supply: how sensitive quantity supplied is to changes in price, note: per unit cost of production determines the elasticity of supply. The lower the cost, the more elastic: for demand, elasticity is driven by 2 key factors, how necessary the good is (the more necessary, the more inelastic) If there are substitutes (the more substitutes, the more elastic: the midpoint method to calculate the elasticity = (change in quantity demanded/average quantity)/ (change in price/average price) Difficult to increase production at a constant unit cost (some raw materials, for example) Easy to increase production at a constant unit cost (some manufactured good) If you tax an industry with elastic supply curve, the industry inputs will escape to other industry.