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ln6_priceandrevenue - Lecture 6 Price and Revenue...

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1 Lecture 6: Price and Revenue Elasticity 1. Although demand curves are downward sloping and supply curves are upward sloping, their degree of "steepness" or "flatness" can vary. 2. What does this mean? A "steep" demand curve, like: 0 20 40 60 80 100 120 10 20 30 40 50 quantity price means consumers don't change their purchasing behavior as much as with a more "flat" demand curve like: 0 20 40 60 80 100 120 10 20 30 40 50 quantity price
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2 Likewise, with a "steep" supply curve, like: 0 20 40 60 80 100 120 10 20 30 40 50 quantity price businesses don't change their production as much when price changes as with a more "flat supply curve like: 0 10 20 30 40 50 60 70 80 10 20 30 40 50 quantity price
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3 Steep demand curves are more likely with "necessities", and "flat" demand curves are more likely with "luxuries". A steep supply curve is more likely for products or services that take a long time to develop (pharmaceuticals, surgeons, electricity), whereas a flat supply curve is more likely for products or services that can be quickly produced (food, clothes). 3. Economists have developed measures of the relative steepness or flatness of demand and supply curves. For demand curves, the measure is called price elasticity of demand.
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