ECON 1011 Lecture Notes - Lecture 3: Perfect Competition, Demand Curve
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ECON 1011 Full Course Notes
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Price elasticity of demand measures how much qd responds to a change in p. More horizontal the demand curve greater the ped, small change in price = greater change in qd. More vertical the demand curve smaller the ped, large change in price = smaller change in qd. How to calculate: % change in q / % change in p. If q rises by more than the % fall in price = high elasticity. If q rises by less than the % fall in price = low elasticity. If q rises by the same amount as price = unit elastic. Midpoint method: (new value - old value) / average of both values x 100. Do this for both quantity and price. When d is elastic price decreases lead to higher revenue. When d is inelastic price increases lead to higher revenue. Elasticity is not constant along a linear demand curve.