ECON 203 1nd Edition Lecture 10Outline of Last Lecture I. price floorOutline of Current LectureI. ElasticityCurrent LectureI. Elasticity Elasticity is the level of responsiveness. It describes how one condition changes in response to the change of another conditionReview: the first law of demand states as the price of good x increases, the quantity demanded of good x decreases. The own-price elasticity of demand( i.e. elasticity of demand)- measures the response of quantity demanded to a change in the good’s own priceED= (%∆ QDx)/(%∆Px)Ex.) a 10% increase in price of good x causes a 30% decrease in quantity demanded of good xED= -30%/+10%= -3ED is unitless. It will always be negative due to the first law of demand.( price and demand have an inverse relationship). When ED=0, it is perfectly inelastic- whatever the price change and no matter the sizeof the price change, the quantity demanded will not change-violation of the first law of demand-situations trend toward this, but it doesn’t exist-ideal good to place tax uponWhen ED is between 0-1, the size(percentage) of price change is larger in size than the quantity demanded (inelastic)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.Ex) a 10% increase in price of good x causes a 3% decrease in QDxED= -3/+10=-0.3- Goods and services in this range tend to have no substitutes(i.e. dominion power, insulin, etc.)- Consumers may change behavior, but not by
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