ECON 040 Lecture Notes - Lecture 6: Economic Equilibrium, Insulin, Peanut Butter
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4 Oct 2020
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The elasticity of demand is different at every point along a downward sloping linear demand curve. Figure 3. 2 elasticity along the corn demand curve. The elasticities are constant along the horizontal and vertical linear demand curves. Along a horizontal demand curve, elasticity is infinite perfectly elastic demand. People are willing to buy as much as firms sell at any price less than or equal to p* If the price increases even slightly above p*, demand falls to zero. A small increase in price causes an infinite drop in quantity demanded. Along a vertical demand curve, elasticity is zero perfectly inelastic demand. If the price goes up, the quantity demanded is unchanged. Example: insulin for diabetic people; life saving surgery. A demand curve is vertical for essential goods goods that people feel they must have and will pay anything to get. Whether the revenue rises or falls when the equilibrium price increases depends on the elasticity of demand.
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