ECONnotes3 - 03:55 Factorsaffectingelasticityofdemand

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03:55 Factors affecting elasticity of demand- Number of substitutes-  More number, greater elasticity. Share of budget-  bigger share, more elastic. Nature of the good-  Necessity/Luxury Time period-  Longer time increases elasticity (finding more substitutes and  adjusting to price) [except for durable goods like automobiles and airlines for  which they are not many substitutes so in the long run demand is inelastic even  though it might have an affect in the short run] Note- Root Beer has a higher elasticity than AW diet root beer because it is a  broader category and therefore has more substitutes. Note- Market and brand level elasticizes- It is important not to assume that if the  demand for a product is inelastic, then the demander each seller of that product  faces is also inelastic. E.g. demand for cigarettes (industry) is inelastic but the  demand for individual brands is elastic. If a firm expects its competitors to match  its price change, then market elasticities must be taken. If the firm doesn’t expect  them to match the price change, then brand elasticities are taken.  We can find the intercept to a demand curve if we know that elasticity= -b(P/Q); 
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This note was uploaded on 03/02/2011 for the course ECON 3010 taught by Professor Reynolds during the Spring '09 term at UVA.

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ECONnotes3 - 03:55 Factorsaffectingelasticityofdemand

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