Econ 1101 1st Edition Lecture 7 Outline of Last Lecture I Wrap Up of Supply and Demand II MobLab Experiment Discussion III Introduction to Elasticity Outline of Current Lecture II Perfectly Inelastic a Supply b Demand III Perfectly Elastic a Demand IV Inbetween Cases V Short Run vs Long Run Elasticity VI Demand Determinants Current Lecture When calculating elasticity change everything into percentages to get rid of units Perfectly Inelastic Demand The quantity demanded does not change when price changes Examples include Aplia and Insulin Perfectly Inelastic Supply Quantity Supplied doesn t change when price changes Examples include exclusive real estate like beach front property and higher education Perfectly Elastic Demand When you change price by even the slightest amount The demand changes drastically No matter what the consumers go crazy This isn t a realistic happening it is theoretical Goods are either too CHEAP to purchase or too EXPENSIVE to purchase Lower price would mean infinite demand and higher price would mean no demand Example would be the money store Inbetween Cases These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute When 0 demand elasticity 1 inelastic demand When 1 demand elasticity elastic demand When demand elasticity 1 unit elasticity example of this Is when the price rises by 10 the quantity demanded falls by 10 Short Run vs Long Run Elasticity When spending increases the demand stays pretty much the same In the long run people might move closer to their work chose to drive cars choose public transit etc therefore it doesn t work to calculate it long term When estimating elasticity we have to hold the determinants We must convince ourselves that demand didn t change but the supply DID Demand Determinants Tastes of Consumers Number of Consumers Income Change Normal and Inferior goodss Price of substitute compliments In the long run we need to compare cases where prices have been different a long time Realistically we cannot do that
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