Chapter 5

Elasticity makes sense because that represents the fluidity of the market.
The price elasticity of demand is a little confusing but I understand what makes goods inelastic or elastic.
What does it mean for a good to have close substitutes?
It makes perfect sense that a good like water's demand wouldn't change if the price went up making water inelastic.
Why is it more likely for goods to be more elastic over time?
The midpoint method is slightly confusing.
The number 1 is key in determining elasticity.
More than is elastic.
Less than is inelastic.
Equal meams quantity moves at same amount proportionately as price.
Perfectly inelastic is vertical
Perfectly elastic is horizontal
Demand curve is essentially the slope of the graph.
Total revenue is equal to: (price of good)x(quantity sold)
Inelastic: increase in price leads to increase in revenue
Elastic: increase in price leads to decrease in revenue
Three Rules to Remember:
-Inelastic demand: price and revenue move same direction
-Elastic demand: price and revenue move in opposite directions
-Unit Elastic demand: revenue remains constant when price changes
Normal goods have positive income elasticity.
Necessities have smaller income elasticity.
Luxuries have higher income elasticity.