ch5 - Chapter 5 Elasticity and Its Application 10:17:00 ←...

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Unformatted text preview: Chapter 5: Elasticity and Its Application 20/09/2007 10:17:00 ← Elasticity of demand: • elasticity- measure of the responsiveness of quantity demanded or quantity supplied to one of its determinants • price elasticity of demand- measures how much the quantity demanded responds to a change in price o % change quantity demanded / % change in price • goods with close substitutes have more elastic demand o ex. butter vs margarine • necessities have inelastic demands o going to the doctor’s vs buying sailboats • market definition- broader category has inelastic demands o food vs ice cream • time horizon- more elastic demand over longer time horizons o gasoline price rises, demand rises; then falls after a long time • midpoint method: o price elasticity of demand= (Q2-Q1)/(Q2+Q1)/2 (P2-P1)/(P2+P1)/2...
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ch5 - Chapter 5 Elasticity and Its Application 10:17:00 ←...

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