COMMERCE 1B03 Chapter Notes - Chapter 5: Midpoint Method, Demand Curve, Normal Good

• School: McMaster University
• Department: Commerce
• Course: COMMERCE 1B03
• Professor: Rita Cossa

Document Summary

Elasticity numerical measure of responsiveness of qd or qs to one of its determinates. Price elasticity of demand measures how much. All elasticities are reported as positive numbers. A problem with this method is that different answers are received depending on where you start from. Price elasticity is higher when there are close substitutes available. Price elasticity is higher for narrowly defined goods (jeans) than broadly defined goods (shirts) Price elasticity is higher for luxury goods than for necessities. Price elasticity is higher in the long run than in the short term. Price elasticity of demand is closely related to the slope of the demand curve: Higher p means more revenue per unit sold. However, less units are sold due to law of demand. If demand is elastic, price elasticity of demand. % change in q > % change in p. If demand is inelastic, price elasticity of demand. % change in q < % change in p.