ECON-221 Lecture Notes - Lecture 23: Perfect Competition, Reservation Price, Opportunity Cost
24 Sep 2020
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Document Summary
If demand was much more flexible, and the consumer could select the exact amount of goods she wants, the model will transform as shown below. Factors that can generate a shift to the right of the demand curve: An increase in the price of substitutes. An increase in income for a normal good. A decrease in income for an inferior good. A positive shift in consumers" preferences towards a certain good. Expectations of an increase in future prices that push the buyers to try to purchase the goods early. Price elasticity of demand captures the percentage change in quantity demanded resulting from a very small percentage in price: the formula to find elasticity of demand is the same as elasticity of supply. The elasticity on the demand curve will be different at different points on the curve: in fact, it will decrease along the demand curve moving from left to right, as the price decreases and the quantity increases.
