ECON 101 Lecture Notes - Lecture 11: Price Elasticity Of Demand, Demand Curve, Normal Good
Document Summary
After calculating the price elasticity of demand, you determine whether it is elastic, inelastic, or unitary elastic with the following: If the absolute value of the elasticity term <1, then the demand is inelastic. If the absolute value of the elasticity term is >1, then the demand is elastic. If the absolute value of the elasticity term =1, then the demand is unitary elastic. Because price elasticity of demand is always negative, the sign on the coefficient is often omitted in discussions of elasticity. Perfectly inelastic: as increase in price results in no change in consumers purchases. The vertical demand curve is mythical as the substitution and income effects prevent this from happening in the real world. Relatively inelastic: a percent increase in price results in a smaller % reduction in sales. The demand for cigarettes has been estimated to be highly inelastic.
