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LeoMessi
 3 years ago
Best ResponseYou've already chosen the best response.2Right, a fundamental question ;) Let's first draw Supply and Demand graphs

LeoMessi
 3 years ago
Best ResponseYou've already chosen the best response.2Price is on the the Yaxis, and Quantity is on the Xaxis. This is the basic concept

LeoMessi
 3 years ago
Best ResponseYou've already chosen the best response.2Elasticity of demand is concerned with how the demand curve changes given changes in price. \[\Delta demand / \Delta price\]

LeoMessi
 3 years ago
Best ResponseYou've already chosen the best response.2dw:1330488876988:dw at price P1, Q1 is demanded of the good we're considering

LeoMessi
 3 years ago
Best ResponseYou've already chosen the best response.2dw:1330488933838:dw now if P1 increases to P2, the quantity demanded decreases to Q2 here

LeoMessi
 3 years ago
Best ResponseYou've already chosen the best response.2The demand curve hers is pretty much negatively linear (let's say 1 slope), so the elasticity is between that of perfectly elastic and perfectly inelastic.

LeoMessi
 3 years ago
Best ResponseYou've already chosen the best response.2Yes, sodw:1330489138203:dw

LeoMessi
 3 years ago
Best ResponseYou've already chosen the best response.2I'll just use this graph as a baseline so i can show you changes more easily

LeoMessi
 3 years ago
Best ResponseYou've already chosen the best response.2dw:1330489205506:dw perfectly elastic demand is a horizontal demand curve. When the price changes, the demand essentially drops to 0

LeoMessi
 3 years ago
Best ResponseYou've already chosen the best response.2dw:1330489375627:dw P1 increases to P2, but Demand only will "buy" the product at P1 and will only buy Q1 of the product. So the price increased and demand dropped, so that probably means that the consumer found another similar product to purchase

LeoMessi
 3 years ago
Best ResponseYou've already chosen the best response.2dw:1330489585257:dw Here you have Inelastic demand, what do you think happens when the price increases?

Ackbar
 3 years ago
Best ResponseYou've already chosen the best response.0ah, ok, easy to see! an increase in price wouldn't change demand, Q1 would still be demanded

LeoMessi
 3 years ago
Best ResponseYou've already chosen the best response.2Exactly, seems like this helped ;)

joycechee
 3 years ago
Best ResponseYou've already chosen the best response.0LeoMessi, by a change in the demand, I think you mean a change in the quantity demanded because the curve never shifts. So, are you saying that the slope or the derivative from the previous equilibrium point to the second point is negative? Just a little confused.
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