In A Normal Downward Sloping Demand Curve
Economics notes
In A Normal Downward Sloping Demand Curve
➡️ Price elasticity of demand measures the responsiveness of quantity demanded to a change in price. If demand is elastic, a small change in price will lead to a large change in quantity demanded, resulting in a decrease in revenue for the firm.
➡️ If demand is inelastic, a small change in price will lead to a small change in quantity demanded, resulting in an increase in revenue for the firm.
➡️ If demand is unit elastic, a small change in price will lead to an equal change in quantity demanded, resulting in no change in revenue for the firm.
What factors can cause a shift in the demand curve?
Factors that can cause a shift in the demand curve include changes in consumer income, tastes and preferences, prices of related goods, population demographics, and advertising and marketing efforts.
How does elasticity of demand affect pricing decisions?
Elasticity of demand refers to the responsiveness of quantity demanded to changes in price. If demand is elastic, a small change in price will result in a large change in quantity demanded, and vice versa. This means that firms must be careful when setting prices, as a small change in price can have a significant impact on revenue.
What is the difference between a normal good and an inferior good?
A normal good is a good for which demand increases as consumer income increases, while an inferior good is a good for which demand decreases as consumer income increases. Examples of normal goods include luxury items like designer clothing, while examples of inferior goods include generic brands and low-quality products.