ECO101H1 Chapter Notes - Chapter 4: Demand Curve, Excise, Normal Good
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ECO101H1 Full Course Notes
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When quantity demanded is quite responsive to changes in price, demand is elastic. When quantity demanded is quite unresponsive to changes in price, demand is inelastic. = percentage change in quantity demanded percentage change in price. Elastic demand: percentage change greater than 1. Unit elastic: percentage change is exactly 1. Vertical demand curve -> elasticity is zero when a change in price leads to no change in quantity demanded. Horizontal demand curve -> elasticity is said to be infinity because even a small change in price leads to an enormous change in quantity demanded. Products with close substitutes = elastic demands; products with no close substitutes = inelastic demands. Moving down a linear demand curve, price elasticity falls continuously, even though the slope is constant. > if elasticity is less than 1, total expenditure is positively related with price. > if elasticity is greater than 1, total expenditure is negatively related with price.