2.1.10, Lecture Notes, Econ 201

# 2.1.10, Lecture Notes, Econ 201 - 2.1.10, Lecture Notes,...

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2.1.10, Lecture Notes, Econ 201 ELASTICITY In general, elasticity measures the RESPONSIVENESS of one variable to change in another variable. MANY ELASTICITY MEASURES In principle, you can compute the elasticity between any two variables. Price elasticity of demand Income elasticity of demand Cross-price elasticity of demand Elasticity of supply (On Supply Side) PRICE ELASTICITY OF DEMAND Measures the responsiveness of a quantity demanded to changes in a good’s own price. The price elasticity of demand is the percent change in quantity demanded divided by the percent change in price that caused the change in quantity demanded. ∆Q D Q D + = - ∑ D (ALWAYS use absolute value, always a positive number) _____ ∆ P P - RELATIVE MEASURE P Q 0.30 12 0.20 20 ∆P = .30-.20 = 0.10 .10 = 1/3, .333 0r 33% .30 MIDPOINT METHOD OF COMPUTING ELASTICITY TERMS TO LEARN 1 Unit[ary] elastic Ex: 20% change in Quantity Demanded 20% Change in Price 2 (If greater than one) Elastic

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## This note was uploaded on 10/13/2011 for the course EC 201 taught by Professor Haider during the Spring '10 term at Michigan State University.

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2.1.10, Lecture Notes, Econ 201 - 2.1.10, Lecture Notes,...

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