Ch.+4.3

Questions
 * Ch. 4.3 Notes and Questions 1-4**
 * **Elasticity of demand**- Measures how consumers react to a change in price
 * Your demand for a good that you will keep buying despite a price increase is **inelastic,** or relatively unresponsive to price changes
 * If you buy much less after a small price increase, your demand is **Elastic**
 * A consumer wih highly elastic demand for a good is very responsive to price changes
 * Calculating Elasticity**
 * To compute elasticity of demand, take the percentage change in demand of a good, and divide this number by the percentage change in the price of the good
 * the law of demand implies that the resilt will always be negative
 * reason being is because of an increase in the price of a good will always decrease in the quantitity demanded, and a decrease in the price of a good will always increase the quantitity demanded, for sake of simplicity, economists drop the negative sign
 * Price Range**
 * the elasticity of demand for a good varies at every price level
 * demand for a good can be highly elastic at one price and inelastic at a different price
 * Values of Elasticity**
 * If the elasticity of demand for a good at a certain price is less than 1, we describe demand as inelastic
 * if the elasticity is greater than 1, the demand is elastic
 * if the elasticity is exactly equal to 1, we describe demans as **unitary elastic**
 * When elaticity of demand is unitart, the percentage change in quantity demanded is exactly equal to percentage change in the price
 * Factors Affecting Elasticity**
 * The goods you list might have some traits that set them apart from other goods and make your demand for those goods less elastic
 * Several different factors can affect a person's elasticity of demand for a specific good
 * Availability of Substitutes**
 * If there are few substitutes for a good then even when its price rises greatly, you might still buy it
 * Demand for life-saving medicine is usually inelastic
 * if the lack of substitutes can make demand inelastic, a wide choice of substitute goods can make demand elastic
 * Relative Importance**
 * a second factor in determining a good's elasticity of demand is how much of your budget you spend on the good
 * If you already spend a large amount of your budget on a good and its price increases, there will be some tough decisions
 * Unless you want to cut back drastically on other goods, then you must reduce a good amount to keep your budget in control
 * Necessities Versus Luxuries**
 * The third factor in determining a good's elasticity varies a great deal from person to person, but nonetheless important
 * Whether a person considers a good to be a necessity or a luxury has a great impact on the goods elasticity of demand for that person
 * A necessity is a good that people will always buy regardless of the price increase
 * Because it is easy to reduce the quantity of luxuries demanded, demand is elastic
 * 1) Elasticity of demand is the measurement of how consumers react to price changes
 * 2) 5 gum is at $1.25, if it increases to $2.00 most people will switch brands
 * 3) Home heating fuel during the winter is inelastic because we need it to keep warm and not freeze to death
 * 4) Total revenue is the amount of money a company receives by selling its goods, this is calculated by the price of the goods, and the quantity sold