03-Elasticity - Supply-and-Demand Model: Elasticity...

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1 Supply-and-Demand Model: Elasticity Reading: Chapter 2
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2 Elasticities of Supply and Demand Not only are we concerned with what direction price and quantity will move when the market changes, but we are concerned about how much they change Elasticity gives a way to measure by how much a variable will change with the change in another variable
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3 Price Elasticity of Demand summarizes the sensitivity of quantity demanded to the price change: Always a negative number – consistent with the Law of Demand % change in quantity demanded % change in price D D P D Q P E P Q = =
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4 Price Elasticity of Supply measures the sensitivity of quantity supplied to a change in price The elasticity of supply has the same sign as the slope of the supply curve (positive) % change in quantity supplied % change in price S S P S Q P E P Q = =
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5 Types of Elasticity |E P | > 1: demand/supply is price elastic |E P | < 1: demand/supply is price inelastic |E P | = 1: unitary elasticity of demand/supply
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This note was uploaded on 07/06/2009 for the course ECON 102A taught by Professor Sorensen during the Spring '08 term at UC Riverside.

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03-Elasticity - Supply-and-Demand Model: Elasticity...

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