ECO 1104 Chapter Notes - Chapter 4: Substitute Good, Starbucks, Negative Number

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ECO 1104 Full Course Notes
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ECO 1104 Full Course Notes
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Elasticity - the measure of how much consumers and producers will respond to a change in market conditions. Price elasticity of demand - the size of change in the quantity demanded of a good or service when its price changes. When consumers" buying decisions are highly in uenced by price, demand is more elastic such that a small change in price causes a large change in the quantity demanded. When consumers are not very sensitive to price changes such that they buy approximately the same quantity regardless of the price, demand is inelastic. Nb: ped will always be a negative number since price and quantity demanded move in opposite directions. Economists drop the negative sign and express the ped as a positive number, just for the sake of convenience. Availability of substitutes - when the price of a good with a close substitute increases, consumers will buy the substitute instead.

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