ECO 201 Chapter Notes - Chapter 7: Demand Curve, Allocative Efficiency, Economic Surplus
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If demand curve is steep then quantity demanded isn"t very responsible if demand curve is almost flat then it is very responsible. Price elasticity of demand: measure of responsiveness of quantity demanded of good to change in price when all other influences remain the same. Elasticity is the ratio of two percentage changes. Ignore the signs for elasticity, use the absolute value to get the magnitude. Perfectly inelastic demand: when quantity demanded remains constant and price changes, elasticity equals zero. Unit elastic demand: when percentage change in quantity demanded equals percentage change in price, elasticity equals one. Inelastic demand: any demand between zero and one. Perfectly elastic demand: when quantity demanded changes by infinitely larger percentage to a tiny price change. Elastic demand: when elasticity is greater than one between unit elastic demand and perfectly elastic demand. Demand for a good that has a perfect substitute is perfectly elastic. +closer the substitutes, the more elastic is the demand.