ec-17 - Economics Study Guide: Chapter 4-6 Elasticity of...

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Economics Study Guide: Chapter 4-6 Elasticity of Demand- the measure of the responsiveness of the quantity demanded to a change in its price. Price Elasticity of Demand= Percentage Change in Quantity Demanded Percentage Change in Price Elasticity of Supply- the measure of the responsiveness of the quantity supplied to a change in its price. Price Elasticity of Supply= Percentage Change in Quantity Supplied Percentage Change in Price Midpoint Formula- (Q2-Q1) Divided (P2-P1) (Q2+Q1) By (P2+P1) Point Slope Formula- ( 1 ) Multiplied (P) Slope By (Q) How to determine: Elastic- Percentage Change in Quantity demanded is larger than the Percentage Change in Price oo > E(p) > 1 E(p) = oo - perfectly elastic Inelastic- Percentage Change in Quantity demanded is smaller than the Percentage Change in Price 0 < E(p) < 1 E(p) = 0 – perfectly inelastic Unit Elastic- Percentage Change in Quantity demanded is equal to Percentage Change in Price. E(p) = 1 Total Revenue & Total Expenditure -if your demand is elastic, a 1 percent price cut increases the quantity you buy by more than 1 percent and your expenditure on the item increases -if your demand is inelastic, a 1 percent price cut increases the quantity you by by less that 1 percent and your expenditure on the item decreases -if your demand is unit elastic, a 1 percent price cut increases the quantity you buy by 1 percent and your expenditure does not change Determinants of Elasticity: Time- the greater the time elapsed since the last price change, the more elastic the demand for it Substitutes- the closer the substitutes for a good or service, the more elastic the demand for it. Relation to Income- the greater the proportion of income we spend on a good, the more elastic the
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This note was uploaded on 04/19/2011 for the course ECON 200 taught by Professor Staff during the Winter '09 term at Indiana.

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ec-17 - Economics Study Guide: Chapter 4-6 Elasticity of...

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