ECON101 Lecture Notes - Lecture 4: Negative Number, Normal Good, Inferior Good

• School: University of Waterloo
• Department: Economics
• Course: ECON101
• Professor: Robert Park

Document Summary

Price elasticity of demand: when supply increases, the equilibrium price falls and equilibrium quantity increases. But the amount in which the price falls and the quantity increases depends on the responsiveness of the quantity demanded to a change in price: the responsiveness is the slope. The steeper the slope, the larger the fall in price and smaller increase in quantity. And the opposite is true for the less steeper slope: the slope of the demand curve depends on the units in which we measure price and quantity. We often have to compare units that are measured in different quantities: e. g. if measuring pizza and soft drinks, their units of measurements are unrelated, so you cannot compare their slope. The ratio of the 2 percentages is number without units: minus sign and elasticity: as price of a good rises, the quantity demanded decreases.