01:220:102 Chapter Notes - Chapter 6: Inferior Good, Normal Good, Midpoint Method
chrisfive2005 and 37653 others unlocked
57
01:220:102 Full Course Notes
Verified Note
57 documents
Document Summary
To earn significant profits, you need to know the price elasticity of demand (used to predict relationship between rise in price and increase in revenue) The price elasticity of demand is the ratio of the percent change in the quantity demanded to the percent change in the price as we move along the demand curve. The law of demand says that demand curves are downward sloping, so price and quantity demanded always move in opposite directions. The midpoint method is a technique for calculating the percent change. In this approach, we calculate changes in a variable compared with the average, or midpoint, of the starting and final values. The case of a zero price elasticity of demand is known as perfectly inelastic demand. Demand is perfectly inelastic when the quantity demanded does not respond at all to changes in the price. When demand is perfectly inelastic, the demand curve is a vertical line.