elasticity

elasticity - Elasticity So far, we have studied how S and D...

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1 Elasticity • So far, we have studied how S and D shifts affect P* and Q* – We know that a supply increase will cause Q* to increase and P* to decrease. – But how much do P* and Q* change? • Depends on ? – shape of, location on the demand curve – responsiveness of quantity demanded to a change in price same S, different D supply shift of identical size P Q S D P Q S D Why isn’t slope enough? slope is sensitive to units P Q (inches) D P Q (feet) D $3 5 $2 10 60 120 Elasticity • Elasticity: a measure of responsiveness – Price elasticity of demand – Income elasticity of demand – Cross-price elasticity of demand – Price elasticity of supply Price Elasticity of Demand a units-free measure of the responsiveness of quantity demanded to a change in price. specifically: percentage change in quantity demanded that results from a one percent change in its price P P Q Q D / ? / ? = price
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This note was uploaded on 04/13/2008 for the course ECON 1 taught by Professor Tang during the Spring '08 term at UCSD.

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elasticity - Elasticity So far, we have studied how S and D...

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