ECON 1B03 Chapter 4-7: Chapter 4-7 Notes (1BO3)
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ECON 1B03 Full Course Notes
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Elasticity: measures how responsive qd or qs is to changes in p and other determinants. Total revenue (tr): is defined as price times the quantity traded. (cid:1846)(cid:1844)=(cid:1842) (cid:1843) Price elasticity of demand: is a measure of how much the quantity demanded of a good responds to a change in the price of that good. The price elasticity of demand is computed as the percentage change in the quantity demanded divided by the percentage change in price. (cid:1831)(cid:1868)=(cid:1868)(cid:1857)(cid:1870)(cid:1855)(cid:1857)(cid:1866)(cid:1872)(cid:1853)(cid:1859)(cid:1857) (cid:1855) (cid:1853)(cid:1866)(cid:1859)(cid:1857) (cid:1866) (cid:1843)(cid:1856) (cid:1868)(cid:1857)(cid:1870)(cid:1855)(cid:1857)(cid:1866)(cid:1872)(cid:1853)(cid:1859)(cid:1857) (cid:1855) (cid:1853)(cid:1866)(cid:1859)(cid:1857) (cid:1866) (cid:1842) (cid:1831)(cid:1868)=% (cid:1866) (cid:1843)(cid:1856) The number we get from our calculations is called the coefficient of elasticity. The size of the coefficient, ep, will tell us how elastic the good is how responsive demand is to a change in price. The larger the coefficient, the more responsive is demand to a change in the price of a good. Inelastic demand: a change in p leads to a proportionately smaller change in qd.