ECN_203_4_Demand

ECN_203_4_Demand - Chapter 4- Market Demand This chapter...

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Chapter 4- Market Demand This chapter examines the demand for goods and services: - Why does demand line slope down? - How much does quantity demanded change when the price changes - How do changes in variables other than price affect demand? - What does elasticity measure? - How do we find market demand ?
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Why Does Demand Line Slope Down? Consumer maximizes utility where MU 1 /P 1 = MU 2 /P 2 = … = MU n /P n If P 1 , then consumer should rebalance by MU 1 to make the ratio equal across goods again. Given diminishing Marginal Utility, this is done by Q 1 .
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Price Elasticity of Demand Price Elasticity of Demand ( ε P ) measures the responsiveness of quantity demanded (Q d ) of a good to changes in its own price. Elastic -- Q d highly responsive to changes in price (Flatter D). Inelastic -- Q d unresponsive to changes in price (Steeper D).
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Determinants of Price Elasticity of Demand Elasticity depends on the following: 1. Necessity versus Luxury 2. Number/ Quality of Substitutes 3. Market Definition 4. Price Relative to Wealth or Income 5. Time Horizon
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Demand (ε): A Formula ε P = |Percentage Change in Q| |Percentage Change in P| . **Always has positive sign– absolute
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This note was uploaded on 02/17/2011 for the course ECN 203 taught by Professor Evensky during the Spring '07 term at Syracuse.

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ECN_203_4_Demand - Chapter 4- Market Demand This chapter...

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