ECN 121 Chapter Notes - Chapter 6: Demand Curve, Midpoint Method, Price Floor
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Explain what the price elasticity of demand means. The ratio of the percent change in the quantity demanded over the percent change in the price as we move along the demand curve. Determine why the mid-point method is superior to the normal way we might calculate the percent change in order to determine a good"s elasticity. To avoid computing different elasticities for rising and falling prices and reach a consistent elasticity price. Explain why a good"s demand elasticity must be negative. Demand curves are downward sloping, so price and quantity demand always move in opposite directions. Explain what it means for a good"s demand elasticity to perfectly inelastic. Demand is perfectly inelastic when the quantity demanded does not respond at all to the changes in price. Explain what it means for a good"s demand elasticity to perfectly elastic. Demand is perfectly elastic when any price increase will cause the quantity demanded to drop to zero.