Chapter 5 - 10.05.12 - 1 Chapter 5 A few objectives 1...

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Chapter 18 / Exercise 40
Exploring Economics
Sexton
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1 Chapter 5 A few objectives: 1. Calculate various types of elasticities and interpret 2. Describe how price elasticity helps predict how total expenditure changes if Pchanges 3. Use income elasticity to identify normal goods, inferior goods, necessities, and luxuries 4. Use cross-price elasticity to identify complements and substitutes Introduce elasticities of supply and demand • S & D changes: so far, have looked only at directions • now want to also consider _______________ - Price elasticity of demandis defined as: %percent change in %percent change in DDDDQQQQEPPPP21211212where Qis the change in is the change in () / 2 is the average () / 2 is the average DQQQPPPPQQQQPPPP(note:"" means "is defined as")
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Exploring Economics
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Chapter 18 / Exercise 40
Exploring Economics
Sexton
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2 - EDmeasures how responsive consumers are to a change in price ___________ a D-curve - ex. if Pincreases 1% and QDdecreases 2%, then price elasticity is ______ (with no units) - important: in general, elasticity _________ along the D-curve (even if D is a straight line)

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