Textbook Notes (368,629)
Canada (162,027)
Economics (747)
ECON 1B03 (303)
Chapter 5

Chapter 5

2 Pages
Unlock Document

Usman Hannan

CHAPTER 5: ELASTICITY AND ITS APPLICATION - elasticity: a measure of how much buyers and sellers respond to changes in market conditions - direction and magnitude The Elasticity of Demand The Price Elasticity of Demand and Its Determinants - price elasticity of demand: measures how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price - elastic if the quantity demanded responds substantially to changes in the price, inelastic otherwise Availability of Close Substitutes - goods with close substitutes have an elastic demand because it is easy to switch over Necessities v. Luxuries - necessities have inelastic demands, luxuries have elastic demands Definition of the Market - how to you draw the boundaries of the market - narrowly defined markets are more elastic because it is easy to find substitutes of narrowly defined goods (i.e. ice cream), broadly defined markets are more inelastic (i.e. food) Time Horizon - more elastic demand over longer time horizons Computing the Price Elasticity of Demand - price elasticity of demand = % change in quantity demanded / % change in price - report as positive numbers Midpoint Method: A Better Way to Calculate Percentage Changes and Elasticities - on a graph to find the elasticity > (A-B)/(midpoint of A and B) x 100 - gives you the same answer regardless of the direction of change The Variety of Demand Curves - demand is elastic when greater than 1, or unit elasticity at exactly 1 - closely related to the slope of the demand curve (i.e. flatter line at that point = greater price elasticity) - perfectly inelastic when elasticity is 0 (demand curve is vertical) - perfectly elastic when the curve is horizon
More Less

Related notes for ECON 1B03

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.