ECON 1 Chapter Notes - Chapter 7: Midpoint Method, Demand Curve
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ECON 1 Full Course Notes
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Elasticity is a measure of the responsiveness of quantity demanded of quantity supplied to a change in one of its determinants. Goods with close substitutes tend to have more elastic demand because it is easier for consumers to switch from that good to others. Necessities tend to have inelastic demands, whereas luxuries have elastic demands. Narrowly defined markets tend to have more elastic demand than broadly defined markets because it is easier to find close substitutes for narrowly defined goods. Goods tend to have more elastic demand over longer time horizons. Elastic: elasticity is greater than 1, which means the quantity moves proportionately more than the price. Inelastic: elasticity is less than 1, which means the quantity moves proportionately less the the price. Unit elastic: elasticity is exactly 1, which means the same amount proportionately as the price. The greater the price elasticity of demand, the flatter the demand curve.