ECON101 Lecture Notes - Lecture 5: Normal Good, Economic Equilibrium, Opportunity Cost
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Elasticity is a measure of how much buyers and sellers respond to changes in market conditions. The price elasticity of demand and its determinants. The law of demand states that a fall in the price of a good raises the quantity demanded. Elasticity: a measure of the responsiveness of quantity demanded or quantity supplied to one of its determinants. Elastic: if the quantity demanded responds substantially to changes in the price: the same product is distributed by many firms. Inelastic: if the quantity demanded responds only slightly to changes in the price: the product is unique and people will be willing to pay for that good at any price. The price elasticity of demand: measures how willing consumers are to buy less of the good as its price rises. Factors that influence the price of elasticity: availability of close substitutes. Goods with close substitutes have more elastic demand because its easier for consumers to switch from that good to others.