ECO101H1 Study Guide - Final Guide: Tennis Ball, Sport Utility Vehicle, Demand Curve

• School: UTSG
• Department: Economics
• Course: ECO101H1
• Professor: James Pesando

Document Summary

Topic 4 elasticity of demand (week 3-4 sep 29th oct 4th) You own the only spring in town, which produces sparkling water that you sell for a bottle; You have no costs, so that your profit equals your total revenue (price x quantity sold); Q1: if you raise your price: consumer who continues to buy your water would pay more; you earns more money per bottle, there will be fewer customer due to the law of downward-sloping demand. Revenue = price x quantity; price goes up while quantity sold goes down. Thus introduced the concept of price elasticity of demand . Elasticity of demand measures the responsiveness of quantity demanded to a change in price. Formula: elasticity of demand = % change in quantity demanded = % qd. % change in price % p (due to the law of downward-sloping demand, the elasticity will be negative; just ignore the negative sign. : mid-point convention (calculating %change)