ECON 104 Chapter Notes - Chapter 4: Income Tax, Negative Number, Payroll Tax
Document Summary
Price elasticity of demand is negative number: easy to confuse thus drop negative sign and report elasticity as a positive number. If (absolute value) elasticity of demand is large number, then quantity demand is sensitive to price: increase price leads to big decrease in demand. If elasticity of demand is small number, then quantity demand is insensitive to price: increase price lead to small decrease in demand. Elasticity of supply measures the response of quantity supplied of a good to change in price of that good. Formally, it"s the percent change in quantity supplied divided by % change in price. Price elasticity of supply is a positive number. Can be avoided (causes economic losses that aren"t offset by gains) Second law of demand: when price change, the consumers are more responsive to it, in long run that in short run i. e. increase $, substitutes needed and this requires time.