ECON 1B03 Chapter Notes - Chapter 4: Price Elasticity Of Demand, Demand Curve, Margarine
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ECON 1B03 Full Course Notes
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Elasticity: a measure of how quantity demanded or supplied responds when one of their determinants change. Co-efficient of elasticity: when we divide the percentage change in q by a percentage change in the determinant, ending up with a number. Gives us information about how a good responds to changes in its determinants. Note: law of demand states that as p rises, qd decreases and vice versa. That means the own-price elasticity of demand coefficient will always be negative. Because of this, we drop the minus sign for ep and consider the absolute value. Perfectly inelastic: q has no response whatsoever when a determinant changes. Percentage change in q given p. c in determinant is zero. Inelastic: q responds only slightly when a determinant changes. Percentage change in q given p. c in determinant is small. Elastic: q responds a good deal when a determinant changes. Percentage change in q given p. c in determinant is fairly big; numerator > denominator.