ECON 102 1st Edition Lecture 11 Elasticity of Demand Measures how buyers change their consumption in a good given the price of that good Typically represented by absolute values Classifying different price elasticity Price ELASTIC 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 As long as the proportional percentage INCREASE of quantity numerator is greater than the proportional percentage DECREASE of the price denominator the value will always be 1 small rise in the price will lead to a larger percentage drop in demand and vice versa o Revenue Price x Quantity Sold When price decreases quantity goes up If quantity goes up more than price goes down revenue will increase Price INELASTIC If the absolute value of elasticity is 1 Decreasing the price of a good that is inelastic would not increase quantity demanded or revenue Price increases will increase revenue Percentage Change Expresses how big of change some quantity is when compared to the original value of that quantity o Start with the first value and divide it by the second Multiply that by 100 Determinants of Price Elasticity of Demand 2 factors o Number of substitutes available o Price of the good relative to one s budget Limited substitutes low price inelastic price of good Many substitutes higher price elastic price of a good More substitutes elastic Low price inelastic Linear Demand Curve Elastic demand flatter o Flatter the demand curve the more elastic a good o Steeper the demand curve the less elastic a good