Ch 4 - Chapter 4 Elasticity Price elasticity of demand ()...

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Chapter 4 – Elasticity Price elasticity of demand ( η29 Def’n: η price in change % demanded quantity in change % = percentages ensure that units of measurement have no effect on η. percentages are measured using the average price and quantity so that is… …the same for a price rise as for a price fall ignore negative sign, treat as a positive number along a linear demand curve A linear demand has …constant slope non-constant > 1 at prices above mid-point = 1 at mid-point < 1 at prices below mid-point Classification of η= 0 completely inelastic (vertical) < 1 : inelastic = 1 : unit elastic (rectangular hyperbola) η1 elastic η=∝ : infinitely elastic (horizontal) EC120 Chapter 4 – Elasticity 1 of 9
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Determinants of η η depends on the ability & willingness of buyers to substitute between products. η is higher. . …in long-run than in the short-run e.g. gas …for a smaller category of goods e.g. ice cream vs. food, cars vs. Honda Civic …if rivals sell close substitutes e.g. Hip CDs in Canada vs. Hip CDs in US EC120 Chapter 4 – Elasticity 2 of 9
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This note was uploaded on 11/17/2008 for the course EC 120 taught by Professor Zeiss during the Spring '08 term at Wilfred Laurier University .

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Ch 4 - Chapter 4 Elasticity Price elasticity of demand ()...

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