L2-Elasticity - Elasticity Chapter 5 1. Goals Understand...

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Elasticity Chapter 5
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1. Goals z Understand what elasticity is. Price elasticity of demand Income elasticity of demand Price elasticity of supply z Analyze supply and demand with greater precision.
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2. Price Elasticity of Demand z Price elasticity of demand is a measure of how much the quantity demanded of a good responds to a change in the price of that good. z Its determinants are Availability of Close Substitutes Necessities versus Luxuries Definition of the Market Time Horizon
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Demand tends to be more elastic : z the larger the number of close substitutes. z if the good is a luxury. z the more narrowly defined the market. z the longer the time period.
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Price Elasticity of Demand z The price elasticity of demand is computed as the percentage change in the quantity demanded divided by the percentage change in price. Price elasticity of demand = Percentage change in quantity demanded Percentage change in price
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z If the price of an ice cream cone increases from $2.00 to $2.20 and the amount you buy
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This note was uploaded on 05/15/2008 for the course ECON 2106 taught by Professor Minjaesong during the Spring '06 term at Georgia Institute of Technology.

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L2-Elasticity - Elasticity Chapter 5 1. Goals Understand...

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