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lecture6

# lecture6 - Economics 103 Lecture 6 More on Demand...

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Economics 103 Lecture # 6 More on Demand Elasticity Let’s consider the demand for a good X in its functional form. Own Price Elasticity -this is the most important for us. E xx > -1 means elasticity is inelastic. E xx < -1 means elasticity is elastic. E xx = -1 means elasticity is unit elastic. Many often drop the minus sign since the own price elasticity is always negative. E xx > 1 means elasticity is elastic. E xx < 1 means elasticity is inelastic. E xx = 1 means elasticity is unit elastic. Technical digression: Arc vs. Point Elasticity. - exactly the same issue as MV. - if ÄP is a discrete number, then we have what is called an ARC elasticity. - if ÄP is infinitely small, then we have a POINT elasticity. An Arc elasticity is an “average” elasticity, and as such has a natural ambiguity. Again, we’ll use whatever is easiest in a given context. Elasticity and slope. - you’ll want to treat the slope of the demand curve as the same as elasticity … don’t.

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