ECN 104 Chapter Notes - Chapter 6: Midpoint Method, Demand Curve
Document Summary
The price elasticity of demand is a measure of sensitivity of the quantity demand to price changes. Problem with standard de nition of price elasticity: elasticity from a to b is different than elasticity from b to a. Solution: using the midpoint method is a technique for calculating the percentage changes in prices or quantities (eg. For prices, calculate price changes relative to the average or midpoint of the starting and nal prices) Demand is elastic if the price elasticity of demand is greater than 1. Demand is inelastic if the price elasticity of demand is less than 1. Demand is unit-elastic if the price elasticity of demand is exactly 1. Demand is perfectly inelastic when the quantity demanded does not respond at all to the changes in the price the demand curve is a vertical line. Demand is perfectly elastic when any price. It matters whether the demand is either unit-elastic, inelastic, or elastic.