ECN211 L4 Demand (continued)_BB

ECN211 L4 Demand (continued)_BB - ECN 211 Macroeconomic...

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1 ECN 211 Macroeconomic Principles L4: Demand (continued)
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Types of demand curves: Elastic demand: Quantity demanded is very responsive to changes in own price Shallow demand curves. Price changes a little, quantity changes a lot Inelastic demand: Quantity demanded is not very responsive to changes in own price Steep demand curves. Change in price, quantity does not change/changes very little 2
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3 Measuring “responses to changes in price” (Own) Price Elasticity of Demand (PED) Measures how responsive quantity demanded is to changes in own price Formula: Ep= % Due to law of demand own price elasticity is always negative
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4 Example If price increases by 10% and quantity demanded falls by 30% then price elasticity is:
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5 Example Q) If the PED is -2.5 then to obtain an increase in quantity demanded of 50% price must? A)-2.5= (+50%/%chngP) A) %chngP=+50%/-2.5 = -20% Decrease by 20%
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Example Then a price increases of $1 causes quantity demanded to fall by 0.5 units? Answer NO!
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ECN211 L4 Demand (continued)_BB - ECN 211 Macroeconomic...

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