lec 8 - 3.c The Second Law of Demand The Second Law of...

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3.c. The Second Law of Demand The Second Law of Demand states that demand is more responsive to price in the long run than in the short run. Initially, when the price of a certain good increases or decreases, consumption does not change very drastically. However, when consumers are given more time to react to the change in price, consumption can either increase or decrease very dramatically. (Demand is not only determined by price but also factors such as: income, tastes, and the price of related goods) Example 1 : Figure 3.c.1 shows the Second Law of Demand and how the demand for a good, such as gasoline changes in the short run (A) and in the long run (B). The flatter, or more “elastic” demand curve (B) is more reactive to the change in price. $20 $12 25 29 45 Price Gas Quantity Gas (A) 1 week demand (B) 1 year demand (D) (E) Figure 3.c.1 shows what happens when the price of gas is reduced from $20 to $12. At the original price of $20 (C), the quantity of gas consumed is 25 units. Within a week as the price is reduced to $12,
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This note was uploaded on 10/03/2011 for the course ECON 1A taught by Professor Cowen during the Winter '09 term at UCLA.

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lec 8 - 3.c The Second Law of Demand The Second Law of...

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