Elasticity - Perfectly inelastic- vertical line Perfectly...

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Elasticity Describing quantitatively how consumers and producers (buyers and sellers) respond to change in prices Elasticity of Demand In general, a demand curve tells us that price and the quantity demanded are inversely related- if price increases, quantity demanded will decrease … but by how much? Steep slope = small decrease Semi steep slope = semi decrease Flat slope = big decrease Elasticity of Demand is the concept that tells us the relative change in quantity demanded associated with a relative change in price (how responsive quantity demanded is to a price change) Ed < 1 = Inelastic Ed = 1 = Unitary Ed > 1 = Elastic Ed = 0 = perfectly inelastic Ed = infinity = perfectly elastic Price Discrimination / Targeting Charging different prices to different consumers for the same good Special cases
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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 &gt; 0 = normal good o EI&lt; 1 = income inelastic o EI&gt; 1 = income-elastic EI&lt;0 = inferior good Cross Price Elasticity Exy &gt; 0 = substitutes Exy &lt; 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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Elasticity - Perfectly inelastic- vertical line Perfectly...

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