ECN 104 Chapter Notes - Chapter 4: Complementary Good, Normal Good, Demand Curve
Document Summary
Price elasticity of demand measures consumer response to price changes: if consumers are relatively sensitive to price changes, demand is elastic, if they are relatively unresponsive to price changes, demand is inelastic. The price elasticity coefficient ed measures the degree of elasticity or inelasticity of demand. The coefficient is found by the formula: Perfectly inelastic demand is graphed as a line parallel to the vertical axis. Perfectly elastic demand is shown by a line above and parallel to the horizontal axis. The number of available substitutes, the size of an item"s price relative to one"s income, whether the product is a luxury or a necessity, and the time given to adjust are all determinants of elasticity of demand. The elasticity concept also applies to supply. The coefficient of price elasticity of supply is found by the formula: 4. 4 cross elasticity and income elasticity of demand.