ECON101 Lecture Notes - Lecture 9: Demand Curve
5 Nov 2018
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Document Summary
Relationship between price elasticity of demand and total revenue. Factors that affect price elasticity of demand. Demand represents entire relationship between price and quantity demanded, holding everything else constant. The law of demand states that when price goes up, quantity goes down. Demand provides information about the direction of the change. The magnitude of the change is measured by elasticity, which measures responsiveness. Three important things to consider: elasticity is the ratio of two proportions. It is a unit free measure: the negative sign must be ignored; take absolute value. 1% increase in price causes 4% decrease in quantity demanded. 1 % decrease in price causes 4% increase in quantity demanded. Different types of elasticity: perfectly inelastic demand, |ed|= 0, vertical line. Unit elastic demand |ed| = 1: elastic demand|ed| > 1, perfectly elastic demand, |ed | = infinity, horizontal line.
