ECON1101 Chapter Notes - Chapter 4: Normal Good, Inferior Good, Demand Curve
Chapter 4
Elasticity of Demand:
Ed =
Equates to the percentage change in the quantity demanded divided by the
percentage change in price.
(change the fractions with %Qd/%P – this equals the same thing as above).
N.B. quantity demanded is negatively related to the price, the elasticity of
demand is a negative number.
Where
is positive; and
is negative
But economists usually report absolute numbers… so it’s fine to keep positive.
Unit-free measure
Elasticity of demand curve is not the same as the slope of demand curve. You
cannot simply just look at flat demand curve and think that it is elastic.
Slope is y/x (rise over run); so that means price/quantity. – it is not a unit
free measure. Depends on how the price and quantity are measured.
Elasticity is a unit-free measure.
Midpoint formula - use for large changes in demand.
Economists classify demand curves by the size of price elasticity of demand
Perfectly Elastic
Price elasticity is:
Infinite response to a change in price
and therefore vertical demand curve
Elastic
Price elasticity is:
>1
Unit Elastic
Price elasticity is 1
Equivalent percentage change.
Inelastic
Price elasticity:
<1
Perfectly inelastic
Price elasticity is:
0
no response to a change in price and
therefore vertical demand curve.
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Document Summary
Equates to the percentage change in the quantity demanded divided by the percentage change in price. N. b. quantity demanded is negatively related to the price, the elasticity of demand is a negative number. Ed = (cid:3017)/ (change the fractions with %qd/%p this equals the same thing as above). Where (cid:3017) is positive; and (cid:3018)(cid:3018) is negative. But economists usually report absolute numbers (cid:523)so it"s fine to keep positive(cid:524). Slope is y/x (rise over run); so that means price/ quantity. Elasticity of demand curve is not the same as the slope of demand curve. You cannot simply just look at flat demand curve and think that it is elastic. free measure. Depends on how the price and quantity are measured. Midpoint formula - use for large changes in demand. Economists classify demand curves by the size of price elasticity of demand. Infinite response to a change in price and therefore vertical demand curve.
