ECONOM 1014 Lecture 7: Elasticity of Demand
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Elasticity: measure of responsiveness of quantity demanded or supplied to price. Explains how total revenue changes with change in price. Percentage change in quantity divided by percentage change in price. Unit elastic: =1 p moves but r stays the same. Fewer substitutes makes it harder for consumers to adjust q hen p changes, so demand is elastic. If there"s more time, there"s more time for consumers to find substitutes -- more elastic. Less specific classification -- fewer substitutes -- inelastic demand. More specific classification -- more substitutes -- elastic demand. Necessities: we do not change q much when p changes. We need this item, so we will pay anything for it. We may or may not buy this item based on price. Less sensitive to price change when goods are cheap. Salt -- we buy this item so infrequently and it"s so cheap that we don"t really notice if the price rises.
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