Study Guides (248,578)
Canada (121,621)
York University (10,209)
Economics (643)
ECON 1010 (137)


9 Pages
Unlock Document

ECON 1010
Sadia Mariam Malik

York SOS Students Offering SupportPrice Elasticity of DemandThe price elasticity of demand is a unitsfree measure of the responsiveness of the quantity demanded of a good o a change in its price when all other influences on buyers plans remain the sameCalculating Price Elasticity of Demand By using the average price and average quantity we calculate the elasticity at a point on the demand curve midway between the original point and the new pointAverage Price and QuantityWe use average point and average quantity because it gives the most precise measurement of elasticityat the midpoint of the original price and the new pricePercentages and ProportionsElasticity is the ratio of two percentage changes The proportionate change in price is PPave and the proportionate change in quantity demanded is QQave So if we divide QQave by PPave we get the same answer we get by using percentage changeA UnitsFree MeasureElasticity is a units free measure because the percentage change in each variable is independent of the units in which the variable is measuredMinus Sign ElasticityWill always be positive because absolute values are always taken into accountInelastic and Elastic DemandIf the quantity demanded remains constant when the price changes then the price elasticity is zero and the good is said to have a perfect inelastic demand If the percentage change in the quantity demanded equals the percentage change in price then the price elastic equals 1 and the good is said to have a unit elastic demand If the price elasticity is between 0 and 1 then the good is said to have an inelastic demandIf the quantity demanded changes by an infinitely large percentage in response to a tiny price change then the price elasticity to demand is infinity and the good is said to have a perfect elastic demandIf the price elasticity is said to be greater than 1 then it is said to havean elastic demand Elasticity along a StraightLine Demand CurveOn a straight line demand curve elasticity decreases as the price falls and the quantity demanded increases Demand is unit elastic at the midpoint of the demand curve Above the midpoint demand is elastic below the midpoint demand is inelasticTotal Revenue and ElasticityThe total revenue fromsale of a good equals the price of the good multiplied by the quantity sold When a price changes total revenue also changes The change in total revenue depends on the elasticity of demandWhen demand is elastic a price cut will increase total revenueWhen demand is inelastic a price cut will decrease total revenueWhen demand is unit elastic a price cut will leave total revenue unchanged TR follows Qd when demand is elastic TR follows P when demand is inelastico At unit elastic total revenue is at its maximum Your Expenditure and Your ElasticityWhen a price changes the change in your expenditure on the good depends on your elasticity of demand So if you spend more on a item when its price falls your demand for that item is elastic if you spend the same amount your demand is unit elastic if you spend less your demand is inelasticThe Factors That Influence the Elasticity of Demandcloseness of substitutesproportion of income spent on the goodtime elapsed since a price change Closeness of SubstitutesThe closer the substitute for a good or service the more elastic is the demand for it The degree of substitutability between two goods also depends on how narrowly or broadly we define them A necessity is a good that has poor substitutes and that is crucial for our wellbeing So generally a necessity has an inelastic demandA luxury is a good has many substitutes so a luxury generally has an elastic demandRaising Marks Raising Money Raising Roofs wwwyorksoscom 8
More Less

Related notes for ECON 1010

Log In


Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.