ECON 103 Lecture Notes - Lecture 9: Deadweight Loss, Price Floor, Economic Equilibrium
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Price floors do not allow the price of a certain good or service to fall below that level. It is important to analyze specifically how markets fail and design policies accordingly. Minimum wage is an example of a price floor. Sensitivity to price elasticities: a demand curve is elastic when an increase in price reduces the quantity demanded a lot and a decrease in price increases the quantity demanded a lot. Price elasticity of demand: the price elasticity of demand measures how sensitive demand is to price. It equals the percent change in quantity demanded divided by the percent change in the price (dropping the minus sign). If demand is elastic, the price elasticity of demand is greater than 1. If demand is inelastic, the price elasticity of demand is lesser than 1. If demand is unit-elastic, the price elasticity of demand is equal to 1.
