Lecture_Microeconomics_Chapter5

# Lecture_Microeconomics_Chapter5 - Elasticity 5 ELASTICITY...

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5 Elasticity

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ELASTICITY elasticity   A general concept used to  quantify the response in one variable  when another variable changes. B A B A = % % respect to with of elasticity
PRICE ELASTICITY OF DEMAND SLOPE AND ELASTICITY FIGURE 5.1 Slope Is Not a Useful Measure of Responsiveness

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PRICE ELASTICITY OF DEMAND price elasticity of demand   The ratio of  the percentage of change in quantity demanded to the percentage of change  in price; measures the responsiveness  of demand to changes in price. price in change % demanded quantity in change % demand of elasticity price =
PRICE ELASTICITY OF DEMAND TYPES OF ELASTICITY TABLE 5.1   Hypothetical Demand Elasticities for Four Products PRODUCT % CHANGE  INPRICE (%  P ) % CHANGE IN QUANTITY  DEMANDED (%  Q D ) ELASTICITY (%  Q D  ÷ % P ) Insulin +10% 0% 0.0 Perfectly inelastic Basic telephone service +10% -1% -0.1 Inelastic Beef +10% -10% -1.0 Unitarily elastic Bananas +10% -30% -3.0 Elastic perfectly inelastic demand   Demand in  which quantity demanded does not  respond at all to a change in price.

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PRICE ELASTICITY OF DEMAND FIGURE 5.2 Perfectly Elastic and Perfectly Inelastic Demand Curves inelastic demand   Demand that responds  somewhat, but not a great deal, to changes  in price.  Inelastic demand always has a  numerical value between zero and -1.
PRICE ELASTICITY OF DEMAND unitary elasticity   A demand relationship  in which the percentage change in  quantity of a product demanded is the  same as the percentage change in  price in absolute value (a demand  elasticity of -1). A warning: You must be very careful about signs. Because it is generally understood that demand elasticities are negative (demand curves have a negative slope), they are often reported and discussed without the negative sign. For example, a technical paper might report that the demand for housing “appears to be inelastic with respect to price, or less than 1 (0.6).” What the writer means is that the estimated elasticity is -.6, which is between zero and -1. Its absolute value is less than 1.

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PRICE ELASTICITY OF DEMAND elastic demand   A demand relationship  in which the percentage change in  quantity demanded is larger in absolute  value than the percentage
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Lecture_Microeconomics_Chapter5 - Elasticity 5 ELASTICITY...

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