MSU Econ 202 Notes - Chapter6Econ292010 15:35

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Chapter 6 Econ 2-9-2010 15:35 Price Elasticity of Demand:  Tells the shape of the demand curve. Income Elasticity of Demand: Tells how income effects the shape of the demand  curve. Price Elasticity of Supply:  Tells us the shape of the supply curve. Elasticity The responsiveness of one variable to another o Econ is trying to make predictions about how the world works.  (How much  is important) Demand: price, income, price of other goods Supply: price A Elasticity of B = %  B/%  A o With an increase or drop in prices, must take ((B2-B1)/B1) / ((A2-A1)/A1) o Drop negative sign if necessary. Mid Point Formula o PED= (B2-B1) / Average B          (A2-A1) / Average A Price Elasticity of Demand: Measures the responsiveness of quantity  demanded to price changes.
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MSU Econ 202 Notes - Chapter6Econ292010 15:35

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