Chapter 5 Notes - Price Elasticity of Demand...

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Price Elasticity of Demand Elastic-quantity demanded responds substantially to change in price generally have narrow markets-ie a flavor of ice cream value greater than 1 flatter graph Inelastic-quantity demanded does not respond much to change in price Have more broad markets- ie food in general Value less than 1 steeper graph Products w/ close subs are more elastic Time horizon-goods more elastic over time Price elasticity=%change in demand/% change in price Always positive Midpoint method-divide change in price by value in the middle of the range that has changed-allows sort of an avg of elasticity of a product when its elasticity changes on diff pts of the demand curve Unit elasticity Perfectly elastic-consumers will buy whatever amount supply provides at a given price
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Unformatted text preview: but zero above that price Total revenue= p x q Equals area under demand curve Total Revenue may change as price changes? Inelastic demand- price and total revenue move in same direction Elastic demand- price and revenue move in opp direction Unit elasticity- constant t. rev Elasticity differs when demand curve in straight line Income elasticity of demand= %change in demand/%change in income Price elasticity of supply =%change in quantity supplied/%change in price elastic if it is changeable inelastic if it’s not perfectly elastic perfectly inelastic elasticity varies in supply as means on production are affected ie using up idle machinery vs having to buy more machinery...
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