ECN 104 Lecture Notes - Lecture 6: The Immediate, Economic Equilibrium, Magnesium Chloride
Document Summary
The law of demands says an increase in price causes a decrease in quantity demanded (vice versa. When qd responds strongly to a change in p, demand is elastic. When qd responds weakly to a change in p, demand is inelastic. The formula is ed= percentage change in quantity demanded of product x/ Percentage change in the price of product x. The price elasticity coefficient: price elasticity of demand, use percentages, unit free measure, compare responsiveness across products. Interpretation of elasticity of demand: ed> 1 demand is elastic, ed= 1 demand is unit elastic, ed< 1 demand s in elastic. For all straight line and most other demand curves: demand is more elastic toward the upper left, demand is less elastic toward the lower right. Determinants of price elasticity of demand: substitutability, proportion of income, luxuries versus necessities, time. Applications of price elasticity supply: antiques and reproductions, volatile gold prices.