Chapter 6-1 - The Concept of Elasticity The Elasticity of...

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1 The Elasticity of Demand Chapter 6-1 The Concept of Elasticity • Elasticity is a measure of the responsiveness of one variable to another. • The greater the elasticity, the greater the responsiveness. Laugher Curve Q. What’s the difference between an economist and a befuddled old man with Alzheimer’s? A. The economist is the one with a calculator. The Concept of Elasticity Elasticity is a measure of the responsiveness of one variable to another. • The greater the elasticity, the greater the responsiveness. Price Elasticity • The price elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price. price in change Percentage demanded quantity in change Percentage = E D Sign of Price Elasticity • According to the law of demand, whenever the price rises, the quantity demanded falls. Thus the price elasticity of demand is always negative. • Because it is always negative, economists usually state the value without the sign.
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2 What Information Price Elasticity Provides • Price elasticity of demand and supply gives the exact quantity response to a change in price. Classifying Demand and Supply as Elastic or Inelastic • Demand is elastic if the percentage change in quantity is greater than the percentage change in price. E > 1 Classifying Demand and Supply as Elastic or Inelastic • Demand is inelastic if the percentage change in quantity is less than the percentage change in price. E < 1 Elastic Demand • Elastic Demand means that quantity changes by a greater percentage than the percentage change in price. Inelastic Demand • Inelastic Demand means that quantity doesn't change much with a change in price. Defining elasticities • When price elasticity is between zero and -1 we say demand is inelastic .
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Chapter 6-1 - The Concept of Elasticity The Elasticity of...

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