week5-082 - Theater, opera 0.18 Using Price Elasticity of...

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1 Elasticity ± Price elasticity of demand ± Relationship between price elasticity and total revenue ± Other types of elasticity ± Why elasticity is large or small PRICE ELASTICITY OF DEMAND Price elasticity of demand = E d E d = Percentage change in quantity demanded Percentage change in price E d = Q/Q P/P P = Q P Q Determinants of Price Elasticity of Demand ± Finding substitutes for the good ± Luxuries versus necessities ± Time lapse since the price change ± Proportion of income spent on the good
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2 Price Elasticities of Demand ± Green Peas 2.80 ± Restaurant Meals 1.63 ± Automobiles 1.35 ± Electricity 1.20 ± Beer 1.19 ± Movies 0.87 ± Foreign Air Travel 0.77 ± Shoes 0.70 ± Coffee 0.25
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Unformatted text preview: Theater, opera 0.18 Using Price Elasticity of Demand Elasticity and Total Revenue 3 Elasticity and Total Revenue E d > 1 E d < 1 E d = 1 P TR TR no change P TR TR no change Other Elasticities Demand elasticities Cross-price Income Price elasticity of supply Summary Price elasticity measures how much the quantity (demanded or supplied) responds to changes in price. This can be generalized to measure the response of one variable to a change in another. Understanding elasticities allows us to analyze supply and demand with greater precision....
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week5-082 - Theater, opera 0.18 Using Price Elasticity of...

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