ECON1131 Lecture Notes - Lecture 10: Demand Curve
Document Summary
Calculate changes in a variable compared with the average, or midpoint, of the starting and final values. % change in x = (change in x/average value of x)*100. Average value of x = (starting value of x + final value of x)/2. Price elasticity of demand = ((q2-q1)/((q1+q2)/2)) / ((p2-p1)/((p1+p2)/2)) Elastic demand: housing, restaurant meals, airline travel, foreign travel. Two extreme cases of price elasticity of demand: demand is perfectly inelastic when the quantity demanded does not respond at all to changes in the price. Demand curve is a vertical line: demand is perfectly elastic when any price increase will cause the quantity demanded to drop to zero. Demand is elastic if the price elasticity of demand is greater than 1. Demand is inelastic if the price elasticity of demand is less than 1. Demand is unit-elastic if the price elasticity of demand is exactly 1. Total revenue = price x quantity sold.
