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Lecture 2-24

# Lecture 2-24 - Lecture Midterm 1 Information 370 took the...

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P Q Elastic 11 P Q Unit Elastic Point Inelastic 11 Ed > 1 Elastic Ed < 1 Inelastic Lecture 2/24/09 Midterm 1 Information: 370 took the exam Mean = 79.7 Median = 82 Mode = 94 High = 100 (18) Low = 33 (1) Advisory Curve A 94-100 AB 89-94 B 80-89 BC 74-80 C 60-74 D/F 0-60 (if 53 or below, see professor) Elasticity: responsiveness of one variable to changes in another variable (measured using percentage changes) Elasticity = % change in one variable/% change in another variable Four types of elasticity: Price Elasticity of Demand E = % change in Qd/% change in P

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Cross-Price Elasticity of Demand (Exy) Exy = % change in Qdx/% change in Py *Substitutes and complements Income Elasticity of Demand (Ei) Ei = % change in Qd/% change in income *Normal and inferior goods Price Elasticity of Supply E = % change in Qs/% change in P Price Elasticity of Demand = % change in Qd/% change in P Since demand is downward sloping, elasticity of demand is negative (absolute value given is a positive number) Elasticity tells us the % change in Qd for each 1% change in price Ed gasoline = 0.2 For a 1% increase in price of gasoline, Qd of gasoline decreases by 0.2%
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