ECO101H1 Chapter Notes - Chapter 6: Price Elasticity Of Demand, Economic Equilibrium, Midpoint Method
elizabethkandelaki and 40134 others unlocked
98
ECO101H1 Full Course Notes
Verified Note
98 documents
Document Summary
Perfectly inelastic: vertical line, price elasticity = 0. Perfectly elastic: horizontal line, price elasticity = infinite. Unit-elastic: price elasticity = 1 (change in price wont change revenue) Price effect: when price increases, each unit sells at higher price (increasing revenue) Quantity effect: when price increases, fewer units are sold (decreasing revenue) Inelastic demand: a change in price does not greatly affect the quantity demanded (price effect dominates) Elastic demand: a change in price greatly affects the quantity demanded (quantity effect dominates) Time elapsed since price change (long-term, demand is more elastic as substitutes have more time to enter market) Measures the effect of the change in one good"s quantity demanded relative to another good"s change in price. Cross-price demand elasticity = % change q demanded in a / % change price of b. Positive/negative values matter as they determine whether goods are complements or substitutes. When positive, goods are substitutes, as rise in price for one increases demand for other.