Textbook Notes (362,796)
Economics (923)
ECN 104 (388)
Eric Kam (21)
Chapter 5

# Chapter 5 - ECN104 - Eric Kam Lecture Notes 2013.docx

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School
Ryerson University
Department
Economics
Course
ECN 104
Professor
Eric Kam
Semester
Fall

Description
ECN104 CHAPTER 5 LECTURE NOTES  Elasticity Formula (Q = Quantity P= price): o [Q2-Q1 / (Q2+Q1 / 2)] / [P2-P1 / (P2+P1 / 2)] o Drop negative sign  Price elasticity is higher when: o Close substitutes are available o For narrowly define goods than broadly defined ones o For luxuries than for necessities o In the long run than in the short run  Perfectly inelastic demand: o Elasticity = 0 o D curve = completely vertical o Any change in price will not affect quantity demand  Inelastic demand: o Elasticity = Less than 1 o D curve = relatively steep o Change in price will have a minuscule change in QD  Unit elastic demand: o Elasticity = 1 o D curve = Intermediate slope (proportionate) o Change in price will have a proportionate change in QD  Elastic demand: o Elasticity = Greater than 1 o D curve = relatively flat o Change in price will have a significant change in QD  Perfectly elastic demand: o Elasticity = infinity o D curve = completely horizontal o QD is so sensitive that there is no change in price o A very rare case  Slope is not elasticity  As you move down the demand curve, elasticity falls (less elastic)  If demand is elastic o % Change in Q is greater than % change in P o Therefore revenue falls because QD changes more relative to change in price o If price goes up, total revenue goes down o Price goes down, total revenue goes up  If demand is inelastic: o % Change in Q is less than % change in P o Therefore revenue falls because P changes more relative to change in QD o If Price goes up, total revenue goes up o If p
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