ECO 1104 Lecture Notes - Lecture 4: Demand Curve
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Elasticity: a measure of the responsiveness to a change in a market condition. Answers the question: how big is the response to the change? . Price elasticity of demand: measures the magnitude of change in the quantity demanded from the change in price. More elastic small changes in price, large change in quantity demanded. More inelastic changes in prices do not change much of the quantity demanded. Calculating price elasticity: the % change in the quantity of a good that is demanded in response to given to a % change in price. Midpoint method: calculates the elasticity at the midpoint of any two points. Midpoint elasticity is the difference of any two points divided by their average. Find the elasticity of demand using the midpoint formula for the points along a demand curve. (10, 350) (20, 150) Q2: 150 (150-350) / [(150 + 350) /2] = -200/250 (20 - 10) / [(20 + 10) / 2] = 10/15.