ec-9 - EconTest2 05:52 Review Chapter4

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Econ Test 2 05:52 Review Chapter 4 Elasticity:  the amount of quantity changes depending on the amount that the  price changes by  Measure elasticity  Mid point formula o [(Q2-Q1)/(Q1+Q2)/2]/[(P2-P1)/(P1+P2)/2] Point slope formula o [1/slope]*[P/Q] Elastic Greater than one, but less than infinity  Between coke and pepsi, if coke increases its price, everyone will buy pepsi  (good substitutes) Perfectly inelastic= infinity (horizontal) Price cut decreases, TR increases Inelastic Great than zero, less than one Gas is inelastic If the price changes, the quantity demanded will still be the same Perfectly inelastic = 0 (vertical)  Price cut, TR decreases Unit elastic  Exactly one If price cut, TR is the same Graph is linear and cuts through origin  Determinants of elasticity
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Time  o Over a longer time, becomes more elastic Substitutes Relation to income o Inferior good, normal good Cross price Based on complements and substitutes (percentage change in quantity demanded)/(percentage change in price of a  substitute or complement)
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ec-9 - EconTest2 05:52 Review Chapter4

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