Chapter 5 Lecture Outline - Economics 101H Vandan Desai...

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Economics 101H Vandan Desai P a g e | 1 Chapter 5: Elasticity and Its Application (Lecture Outline) -------------------------------------------------------------------------------------------------------------------------- I. Elasticity … A. … allows us to analyze supply and demand with greater precision B. … is a measure of how much buyers and sellers respond to changes in market conditions II. The Elasticity of Demand A. Price elasticity of demand: measure of how much the quantity demanded of a good responds to a change in the price of that good B. Price elasticity of demand is the percentage change in quantity demanded given a percent change in price i. Elastic: quantity demanded responds substantially to changes in the price ii. Inelastic: quantity demanded responds only slightly to changes in the price C. Determinants i. Availability of Close Substitutes: Goods with close substitutes = more elastic demand b/c easy to switch from that good to others ii. Necessities versus Luxuries: tend to have inelastic demands, whereas luxuries have elastic demands iii. Definition of the Market: tend to have more elastic demand than broadly defined markets b/c it is easier to find close substitutes for narrowly defined goods iv. Time Horizon:
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This note was uploaded on 10/31/2010 for the course ECON 202 taught by Professor - during the Fall '08 term at Community College of Baltimore County.

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Chapter 5 Lecture Outline - Economics 101H Vandan Desai...

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