ELASTICITY - ELASTICITY Chapter 6 Themes of this chapter 2...

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ELASTICITY Chapter 6
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Themes of this chapter ECO1110F - Elasticity 2 Define, calculate and explain factors that influence the price elasticity of demand Define, calculate and explain factors that influence the cross elasticity of demand & income elasticity of demand Define, calculate and explain factors that influence the price elasticity of supply
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ECO1110F - Elasticity 3 Defining elasticity the responsiveness of demand and supply Types of elasticity Price elasticity of Demand (PED) Income elasticity of Demand (YED) Cross Price elasticity of Demand (CPED) Price elasticity of Supply (PES)
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4 Price elasticity of demand How responsive is quantity demanded to a change in price? S 2 Q 2 Q 1 P 3 Price (rand) D 1 S 1 P 1 Q C S 2 Q 2 Q 1 P 2 Price (rand) D 1 S 1 P 1 Q C What happens if we consider identical changes in supply along two different demand curves?
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ECO1110F - Elasticity 5 Calculating price elasticity of demand PED is a measure of responsiveness of quantity demanded to price changes ∆P Q dAVE % change in price % change in quantity demanded %∆P %∆ Q d ∆P / P AVE Q d /Q dAVE Q d x P AVE =
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ECO1110F - Elasticity 6 Elasticity along a demand curve At the midpoint of the curve, demand is unitary elastic Above the midpoint, demand is relatively elastic Below the midpoint, demand is relatively inelastic Q 1 Price (rands) D 1 P 1 relatively elastic relatively inelastic unitary elastic Quantity
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FIGURE 6-3 The different categories of price elasticity of demand (Textbook page 111) ECO1110F - Elasticity 7
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ECO1110F - Elasticity 8
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ECO1110F - Elasticity 9
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ECO1110F - Elasticity 10
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ECO1110F - Elasticity 11
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ECO1110F - Elasticity 12 Price elasticity of demand at different points along a linear demand curve
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