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Unformatted text preview: Occurs when there is a decrease price and an increase in quantity demanded but the increase in the quantity demanded is not enough to change the revenue greatly. What types of products are considered inelastic? o Necessities o Products that have few substitutes Price Quantity Revenue Original Situation $1.00 100 $100 Price Drops 50% $0.50 120 $160 Price Doubles $2.00 90 $180 What Determines Elasticity? 1. The availability of substitutes 2. Short vs. Long term (long is more elastic than short term) 3. % of income spent on the product (the higher % of income that a product/service consumes, the higher the elasticity) Perfect Inelasticity Also called zero inelasticity Occurs when price change has no effect on the quantity demanded Ex. snow plow during a winter storm Theory of Elasticity * this graph is to be used when proving price elasticity Price Quantity Demanded Price Quantity Demanded D1 (inelastic) D2 (Elastic) QDE QD1 QD2...
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