ECON 203 1nd Edition Lecture 11Outline of Last Lecture I. ElasticityOutline of Current LectureI. Elasticity(cont.)a. Perfectly inelasticb. Inelastic demandc. Unit elasticd. Relatively elastice. Perfectly elasticII. Factors the affect elasticitya. Substitute goodsb. Fraction of budgetc. Time frameIII. Second law of demandCurrent LectureI. Elasticity(cont.)a. Perfectly inelastic- changes in price do not influence changes in quantity demanded. Demand curve is a linear, vertical lineb. Inelastic demand-changes in price are larger than changes in quantity demanded.ED is between 0 and -1. ex.) salt- we barely ever have a need to buy salt, so we will generally buy it no matter what it costs∆P˃∆QDc. Unit elastic- change in price and change in quantity demanded are equal in magnitude. Very rare in the real market. ED=-1These 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.d. Relatively elastic demand- changes in price cause a substantial change in quantitydemanded. ED is between -1 and infinity. ex.) a 12% increase in the priceof good x causes a 48% decrease in quantity demanded of good x∆P˂∆QDe. Perfectly elastic- changes in price will have massive changes in the quantity demanded. Demand curve is a linear, horizontal line. Ex.)ED=-3. For every 1% change in the price of good x, a 3% change will occur in the quantity demanded in the opposite direction. ED=-0.1. For every 1% change in the price of good x, a 0.1% change in the quantity demanded will occur in the opposite direction. II. Factors that Affect Elasticitya. The number and quantity of substitute goods- when you have alternatives to a product, you can be more responsive to the changes in the price of the product. The more substitutes available, the more responsiveness. The less substitutes available, the less responsiveness.b. The fraction/share of your budget that expenditures on this good represent- you become more sensitive to the price changes of goods that take up more of your budget(ex. The price of salt vs. the price of rent)c. The time frame to make the purchase- the more time you have to make a purchase, the more responsive you can be to price changes. III. Second law of demandThe longer a price change persists, the greater will be the change in quantity demanded- demand curves are more elastic in the long run than in the short
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