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Unformatted text preview: Perfectly inelastic- vertical line • Perfectly elastic- horizontal line Why are some goods inelastic and other elastic in demand? • Inelastic = viewd by consumers as “necessity” • Inelastic = amount of budget Why is Elasticity of Demand Important? • Goods with an elastic demand, if price is lowered, total revenue and demand go up • Elasticity of demand changes along the curve EI= Income Elasticity • EI = % change in Q / % Change in I • EI > 0 = normal good o EI< 1 = income inelastic o EI> 1 = income-elastic • EI<0 = inferior good Cross Price Elasticity • Exy > 0 = substitutes • Exy < 0 = complements What about Supply? • Elasticity of Supply- describes how responsive producers (sellers) are to a change in pirce • Es = % change in q / % change in p • Read 352 – 357...
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- Spring '07
- Supply And Demand, Unitary Ed, perfectly inelastic Ed, big decrease Elasticity, Income Elasticity EI