141_Chapter_5_Lecture_Outline - 5 Elasticity...

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5 Elasticity OUTLINE OF TEXT MATERIAL I. Introduction A. How Much? 1. Elasticity   helps   us   estimate   how   much   quantity   demanded,   demand,  quantity supplied and/or supply will change in response to a change in  some other variable. 2. Once we understand the relationship between the change in price and the  change   in   quantity   demanded,   we   can   estimate   the   change   in   total  expenditure. B. Elasticity  is a general concept used to quantify the response in one variable when  another variable changes. The elasticity of A with respect to B is % A/% B. II. Price Elasticity of Demand A. Slope and Elasticity 1. Slope is not a good measure of responsiveness. One important reason is  that slope changes when the units of either axis change. 2. Price elasticity of demand   is the ratio of the percentage of change in  quantity demanded to the percentage of change in price. It measures the  responsiveness of quantity demanded to changes in price. price in change demanded quantity in change demand of elasticity price % % = 3. Price elasticity of demand is naturally negative. Since we know that, we  often omit the minus sign. 51
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48     Principles of Microeconomics B. Types of Elasticity 1. Demand is  perfectly inelastic  if quantity demanded does not change when  the   price   changes.  (The   demand   curve   is  vertical.)   Example:   insulin.
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This note was uploaded on 06/15/2010 for the course EC 142DLB taught by Professor Graceonodipe during the Spring '10 term at Park.

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141_Chapter_5_Lecture_Outline - 5 Elasticity...

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