Econ Chap 5

# Econ Chap 5 - Midpoint= unit elastic %ChangeQuantity/ %...

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Elasticity Measure of responsiveness Price elasticity—measure how responsible quantity demanded is to a change in price The percentage change in quantity demanded divided by the percentage change in price Let p= intial price P1= new price Q= intial quantitry Q1= new quantity Change in q= q-q1 Change in p= p-p1 Graph--- Change in Q= 95-105 …10,000/(95+105)/2 = If %Change Q < % Change P Inelastic demand is between 0 and 1 > Elastic demand is greater than 1 Unit elastic is = 1 As p decreases--- If demand is elastic …total revenue increases IF deman is inelastic….total revenue decreases If demand is unit eleastic… TR is constant Linear D Constant slope Different elasticity along the curve D becomes less elastic as we move down D upper: elastic D lower: Inelastic

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Unformatted text preview: Midpoint= unit elastic %ChangeQuantity/ % ChangePrice = Elastic demand %ChangeQ= ChangeQ (100)---------= 100/150 = 67% (q+q1)/2 (200+100)/2 %ChangeP= ChangeP (-10)---------= -10/85 = 12 % (P+P1)/2 (80+90)/2 ED= 67%/12% = -5.6 = 5.6 > 1 SO ELASTIC Perfectly elastic D curve Horizontal; ED= 00 (infinity) Consumers do not tolerate an increase in P Perfectly Vertical; ED= 0 Price is no object Unit %Change Price causes exact opposite %Change Q Because %Change are off setting total revenue remains constant for every price quantity combo ED is greater: 1) the greater the availability of substitutes and the more similar the substitutes 2) The more important the good is as a share of the consumer’s budget 3) The longer the period of adjustment...
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## This note was uploaded on 10/05/2011 for the course ECON 2005 at Virginia Tech.

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Econ Chap 5 - Midpoint= unit elastic %ChangeQuantity/ %...

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