ECON 1000 Chapter Notes - Chapter 4: Demand Curve, Luxury Goods, Normal Good
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ECON 1000 Full Course Notes
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You know that when supply decreases, the equilibrium price rises and the equilibrium quantity decreases. The answer depends on the responsiveness of the quantity demanded of a good to a change in its price. If the quantity demanded is not very responsive to a change in the price, the price rises a lot and the equilibrium quantity doesn"t change much. If the quantity demanded is very responsive to a change in the price, the price barely rises and there equilibrium quantity changes a lot. Elasticity of demand measures how sensitive quantity demanded is to a change in price. The price elasticity of demand is a units-free-measure of the responsiveness of the quantity demanded of a good to a change in its price when all other in uences on buying plan remain the same. Insulin is such of importance to some diabetics that if the price rises or falls, they do not change the quantity they buy.