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Econ 1 test - Chapter 20 Elasticity of Demand = Percentage...

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Chapter 20 Elasticity of Demand = Percentage of change of Quantity Demanded or =% Ed ∆QD Percentage of change in Price % P % ∆QD = QD 2 – QD 1 % P = P 2 – P 1 QD 2 + QD 1 P 2 + P 1 2 2 Response Ed > 1 = elastic Ed < 1 = inelastic Ed = 1 = unit elastic Total Revenue = Price X Quantity Max TR = Unit Elastic TR P but not below unit elastic = elastic TR P but not above unit elastic = inelastic TR P NC in Price = unit elastic Cross-Price Elasticity of Demand = Percentage of change in demand for good J + = substitutes Percentage of change in price of good K = compliments Income Elasticity of Demand = Percentage of change in demand for good J
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= Inferior Goods Percentage of change in income + = Normal Goods < 0 = Necessity > 0 = Luxury Determinants of Demand 1. How many substitutes there are (More = More Elastic) 2. How well a substitute can replace the good or service under consideration. 3. The importance of the product in the consumer’s total budget 4. The time period under consideration Determinants of Supply 1. Time Perfectly elastic or inelastic curves for demand and supply Chapter 21 Marginal Utility = Change in Total Utility or MU = TU Change in Quantity Q MU = 0, when TU is maximized Consumer Equilibrium = MU (x) = MU (y) = MU (z) P (x) P (y) P (z)
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