01:220:102 Chapter Notes - Chapter 6: Demand Curve, Independent Goods
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01:220:102 Full Course Notes
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Elasticity- measure of the responsiveness of one variable to changes in another variable. Price elasticity- measure of the responsiveness of the quantity demanded of a good to a change in the price of that good. The degree of responsiveness or sensitivity of consumers to change in price is measured by the concept of price elasticity of demand. Price elasticity of demand = (% change in quantity demanded)/(% change in price) If consumers are relatively responsive to price changes, demand is said to be elastic. If consumers are relatively unresponsive to price changes, demand is said to be inelastic. Use the midpoint formula to ensure consistent results. Midpoint formula= (change in price)/(average of both prices) = If the elastic demand < 1, the demand curve is inelastic. If the elastic demand > 1, the demand curve is elastic. If the elastic demand = 1, the demand curve is unit elastic. A perfectly inelastic demand results in an price elasticity of 0.