Lecture on Price Elasticity of Demand

Introduction to Demand Curves

Demand curves typically slope downwards.
Lower prices increase the quantity demanded.
Key concept: Price Elasticity of Demand ((E_p))
- Measures responsiveness of quantity demanded to a change in price.
- Crucial for understanding business practices and tax policy.

Simple slope definition: Change in quantity for a change in price.
- Sensitive to units (e.g., dollars vs. cents).
Price Elasticity of Demand:
- Defined as the percent change in quantity for a percent change in price.
- Denoted using (\Delta) (change symbol).
Example of Elasticity:
- Price increase of 10% leads to a 30% decrease in quantity demanded.
- Elasticity = (-3) (or (3) in absolute terms).
- Elastic demand: When percent change in quantity > percent change in price.

Elastic Demand:
- (|E_p| > 1)
- Large percent change in quantity for a given percent change in price.
Inelastic Demand:
- (|E_p| < 1)
- Small percent change in quantity for a given percent change in price.
Unit Elastic:
- (|E_p| = 1)
- Percent change in quantity equals percent change in price.

Avoid complex formulas like the midpoint formula or arc elasticity.
Focus on intuition: (\frac{\text{Percent change in quantity}}{\text{Percent change in price}}).

Demand Curve Formula: (Q = 1000 - 100P)
Elastic Region:
- High price region (e.g., $9 to $8)
- Significant increase in quantity with a small price decrease.
- Elasticity around (5.6).
Inelastic Region:
- Low price region (e.g., $2 to $1)
- Large price change results in small quantity change.
- Elasticity around (0.18).