ECON 1010H- Midterm Exam Guide - Comprehensive Notes for the exam ( 15 pages long!)
Document Summary
Price elasticity of demand- is a unit free measure of the responsiveness of the quantity demanded of a good to a change in its price. Perfectly inelastic demand- if the quantity demanded remains constant when price changes. examples include insulin. Unit elastic demand- when quantity demanded equals quantity supplied, the price elasticity equals 1. Inelastic demand- when the percentage change in demand is less than the percentage change in price. Easlistity is between 1 and zero and examples include food and shelter. Perfectly elastic demand - when quantity demanded changes by an infinitely large percentage in response to a tiny change in price. Example, two soft drink machines with a slight difference in price. Elastic demand - when percentage change in quantity demanded exceed the percentage change in price. If a price cut increases total revenue, demand is elastic. If price cut decreases total revenue, demand is inelastic. If price cut leaves total revenue unchanged, demand is unit elastic.