ECON 1050 Chapter Notes - Chapter 4: Normal Good, Inferior Good, Economic Equilibrium
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When supply decreases, equilibrium price rises and equilibrium quantity decreases. If quantity demanded is not very responsive to change in price, price rises a lot and equilibrium quantity doesn"t change very much. If quantity demanded is very responsive to change in price, price barely rises and equilibrium quantity changes drastically. If demand curve is steep, quantity demanded isn"t very responsive to change in price. If demand curve is flat, quantity demanded is responsive to change in price. Price elasticity of demand: units free measure of responsiveness of quantity demanded of a good to change in its price when all other influences on buying plans remain the same. Price elasticity of demand= (% change in quantity demanded) / (% change in price) By using average price and average quantity we calculate the elasticity at a point on demand curve midway between the original point and new point. % change in price = (change in p) / (p average) x100.