Chapter 4 introduced us to the qualitative aspect of demand and supply (a shift or movement along the curve). This flowed into chapter 5, which talked about the quantitative aspect (exactly how much the curve moved). This change was measured in elasticity; where quantity demanded or quantity supplied was affected by one of its determinants. The determinants for demand are the change in the price of a good (price elasticity of demand), change in consumer's income (income elasticity of demand), and change in the price of another good (cross-price elasticity of demand). In all cases, "elastic" is used when the quantity demanded responds substantially to the change in determinant, while "inelastic" is used when the quantity demanded responds only slightly to changes in the determinant.
The general rules that determine price elasticity are the availability of substitutes, necessities versus luxuries, definition on the market, and time horizon. Price elasticity of demand is best calculated with the midpoint formula, as it remains the same between both points (it doesn't matter which one is Q1, and which is Q2). Why when you calculate it, is the answer not multiplied by 100? (since Q and P-quantity and price-are not in percentages?) Elasticity is measured in change in percentages.
I think Mankiw did a good job clarifying and expanding on topics that would otherwise be very challenging. Some things I think are important to note from this chapter are:
-When demand is inelastic (the price elasticity < 1), price and total revenue move in the same direction
-When demand is elastic (price elasticity >1), price and total revenue move in the same direction
-If demand is unit elastic (price elasticiy=1), total revenue remains constant when the price changes
-Revenue: P*Q (price of good*the quantity sold)
-Even though the slope of a linear demand curve is constant, the elasticity is not (I was a little confused at why it would change throughout)
-Positive elasticities (in normal goods and substitutes)-> quantity demanded and determinant move in the same direction
-Negative elasticities (in inferior goods and complements) -> inversely affected
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