ECON 1 Lecture Notes - Lecture 4: Price War, Normal Good, Breakfast Cereal
Document Summary
Elasticity : measure of the responsiveness of qd or qs. To a change in one of its determinants. Price elasticity of demand: how much the quantity demanded of a good responds to a change in the price of that good. Loosely speaking, it measures the price-sensitivity of buyers" demand. Midpoint method: the midpoint is the number halfway between the start and end values. Percent change = (end value - start value)/(midpoint) x 100% Price elasticity of demand: (percent change in q)/(percent change in p) (q2-q1)/[(q2+q1)/2] (p2-p1)/[(p2+p1)/2] Determinants of price elasticity of demand: we look at series of examples comparing two common goods. Price elasticity is higher when close substitutes are available. Ex: breakfast cereal (close subs) vs sunscreen (no close subs) Price elasticity is higher for narrowly defined goods than for broadly defined ones. Price elasticity is higher for luxuries than for necessities. Price elasticity is higher in the long run.