Chapter 4 Notes

# Chapter 4 Notes - Vandan Desai ECON 102Principles of...

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Vandan Desai ECON 102—Principles of Macroeconomics 1 Chapter 4—Elasticity and Its Uses (Lecture &otes) Elasticity —measure of how sensitive one variable is to another In terms of the supply and demand model , elasticity measures how sensitive the quantity of good people demand, or that firms supply, is to the price of the good I. Elasticity of Demand A. Defining the Price Elasticity of Demand i. Price elasticity of demand —measure of the sensitivity of the quantity demanded of a good to the price of the good ii. Always refers to a particular demand curve/demand schedule 1. As price increases , the quantity demanded by consumers declines 2. As price decreases , the quantity demanded by consumers increases iii. Measure of how much quantity demanded changes when price changes 1. High = quantity demanded by people changes by a larger amount when the price changes 2. Low = quantity demanded by people changes by only a small amount when the price changes iv. ۾ܚܑ܋܍ ܍ܔ܉ܛܜܑ܋ܑܜܡ ܗ܎ ܌܍ܕ܉ܖ܌ = ܘ܍ܚ܋܍ܖܜ܉܏܍ ܋ܐ܉ܖ܏܍ ܑܖ ܙܝ܉ܖܜܑܜܡ ܌܍ܕ܉ܖ܌܍܌ ܘ܍ܚ܋܍ܖܜ܉܏܍ ܋ܐ܉ܖ܏܍ ܑܖ ܜܐ܍ ܘܚܑ܋܍ B. The Size of the Elasticity: High versus Low i. Quantity demanded is very sensitive to price: demand curve has high elasticity and is relatively flat ii. Quantity demanded is not very sensitive to price: demand curve has low elasticity and is relatively steep C. The Impact on a Change in Supply on the Price of Oil

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## This note was uploaded on 10/31/2010 for the course ECON 201 taught by Professor Coomber during the Spring '08 term at Community College of Baltimore County.

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Chapter 4 Notes - Vandan Desai ECON 102Principles of...

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