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Unformatted text preview: ECON 1 Lecture Notes 10/13/10 Price Elasticity Pattern- price elasticity decreases as prices go down- slope is the same for the linear demand curve- p/q decreases as p goes down Price Elasticity and Slope- if p/q is the same, the E is solely determined by absolute value of slope- when two demand curves cross o p/q is same for both curves o (1/slope) is smaller for the steeper curve- at the common point demand is less price elastic for the steeper curve Two Special Cases- perfectly elastic demand o infinite price elasticity of demand- perfectly inelastic demand o zero price elasticity of demand Scenario You design websites for local businesses. You charge $200 per website, and currently sell 20 websites per month. Your costs are rising (including the opp. cost of your time), so you’re thinking of raising the price by 5%. The law of demand says that you won’t sell as many websites if you raise your price. How many fewer websites? How much will your revenue fall, or might it increase?fewer websites?...
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