The Variety of Demand Curves

The Variety of Demand Curves - The price elasticity of...

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ELASTICITY AND ITS APPLICATION 1 The Variety of Demand Curves The price elasticity of demand is closely related to the slope of the demand curve. Rule of thumb: The flatter the curve, the bigger the elasticity. The steeper the curve, the smaller the elasticity. Five different classifications of D curves.…
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ELASTICITY AND ITS APPLICATION 2 Q 1 P 1 D “Perfectly inelastic demand”    (one extreme case) P Q P 2 P falls by 10% Q changes by 0% 0% 10% = 0 Price elasticity of demand = % change in Q % change in P = Consumers’ price sensitivity: D curve: Elasticity: vertical none 0
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ELASTICITY AND ITS APPLICATION 3 D “Inelastic demand” P Q Q 1 P 1 Q 2 P 2 Q rises less than 10% < 10% 10% < 1 Price elasticity of demand = % change in Q % change in P = P falls by 10% Consumers’ price sensitivity: D curve: Elasticity: relatively steep relatively low < 1
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ELASTICITY AND ITS APPLICATION 4 D “Unit elastic demand” P Q Q 1 P 1 Q 2 P 2 Q rises by 10% 10% 10% = 1 Price elasticity of demand = % change in Q % change in P = P falls by 10% Consumers’ price sensitivity: Elasticity: intermediate 1 D curve: intermediate slope
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ELASTICITY AND ITS APPLICATION 5 D “Elastic demand” P Q Q 1 P 1 Q 2 P 2 Q rises more than 10% > 10% 10% > 1 Price elasticity of demand = % change in Q % change in P = P falls by 10% Consumers’ price sensitivity: D curve: Elasticity: relatively flat relatively high > 1
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ELASTICITY AND ITS APPLICATION 6 D “Perfectly elastic demand”    (the other extreme) P Q P 1 Q 1 P changes by 0% Q changes
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This note was uploaded on 10/14/2011 for the course ECON 2023 taught by Professor Unknown during the Fall '05 term at Arkansas.

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The Variety of Demand Curves - The price elasticity of...

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