ECON 1 Lecture Notes - Lecture 3: Midpoint Method, Demand Curve
Document Summary
Econ1 - introduction to economics - lecture 3: demand supply, elasticity. Module 8: income effects, substitution effects, and elasticity. Economists use the concept of elasticity to measure the responsiveness of one variable to changes in another. 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. (% change in quantity demanded)/(% change in price) The midpoint method is a technique for calculating the percent change. In this approach, we calculate changes in a variable compared with the averages, or midpoint, of the starting and final values. [(q2 - q1) / ((q1 + q2) / 2)] / [(p2 - p1) / ((p1 + p2) / 2)] 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.