[ECO100Y5] - Final Exam Guide - Ultimate 62 pages long Study Guide!
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ECO100Y5 Full Course Notes
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Basic idea: suppose demand for some good shifts out if: qs(p) is not responsive to p (think fixed) P* must rise a lot to clear market (quantity cannot adjust) and q* remains unchanged: qs(p) is very responsive to p (supply any amount at p*) Elasticity: demand is elastic when quantity demanded is quite responsive to changes in price. Inelasticity: demand is inelastic when quantity demanded in unresponsive to changes in price. The more elastic demand is, the less the change in equilibrium price and the grater the change in equilibrium quantity. Elasticity (greek letter eta: ) is defined as: = percentage change in quantity demanded percentage change in price. A demand curve has a negative slope, so the percentage change in price and quantity have opposite signs. Al though demand elasticity is a negative number, we will ignore the negative sign and speak of the measure as a positive number, as we have done in the illustrative calculations.