Textbook Notes (368,242)
York University (12,820)
Economics (1,011)
ECON 1000 (397)
Chapter

ECON 1000 Cha. 4 Notes.docx

3 Pages
60 Views

School
Department
Economics
Course
ECON 1000
Professor
Semester
Fall

Description
ECON Cha. 4 Jot Notes Price Elasticity of Demand - Price elasticity of demand – a units-free measure of the responsiveness of the quantity demanded of a good to a change in its price when all other influences on buying plans remain the same - Elasticity of demand = % change in quantity demanded/ % change in price - % change in quantity demanded = change/average quantity (ex. 9 pizzas -> 11 pizzas, 2/10) - % change in price = change/average price - Elasticity is a units-free measure because the percentage change in each variable is independent of the units in which the variable is measured - The price elasticity of demand is a negative number because a positive change in price beings a negative change in quantity demanded - If % change in quantity demanded = % change in price then price elasticity equals 1 (unit elastic demand) - Inelastic demands are between 0 and 1 (change in quantity < change in price) - Elastic demands are higher than 1 (change in quantity > change in price) - Elasticity does not = slope. (elasticity can be different along the lines of a slope) Total Revenue and Elasticity - If demand is elastic, a 1% price cut increases the quantity sold by more than 1% and totally revenue increases - If demand is inelastic, a 1% price cut increases the quantity sold by less than 1% and total revenue decreases - If demand is unit elastic, a 1% price cut increases the quantity sold by 1% and total revenue does not change - At unit elasticity, total revenue is at a maximum - Total revenue test – a method of estimating the price of elasticity of demand by observing the change in total revenue that results from a change in the price, when all other factors remain the same Your Expenditure and Your Elasticity - If you spend more on an item when its price falls, your demand for the item is elastic - If you spend the same amount, your demand is unit elastic - If you spend less, your demand is inelastic Factors that influence the Elasticity of Demand - The closeness of substitutes - The proportion of income spent on the good - The time elapsed since the price change (as time increase, elasticity increases as well) Cross Elasticity of Demand - Cross elasticity of demand – a measure of the responsiveness of the demand for a good to a change in the price of a substitute or complement, all other things remain the same - Cross elasticity of demand = % change in quantity demanded/% change in price of a substitute or complement - The cross elasticity is positive (a rise in price of a substitute cause an increase for quantity
More Less

Related notes for ECON 1000
Me

OR

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Join to view

OR

By registering, I agree to the Terms and Privacy Policies
Just a few more details

So we can recommend you notes for your school.