5.Elasticities

5.Elasticities - 7 4 Demand 6 3 Midpoint A B C Price elasticity and linear demand Price Demand | e | = 1 | e | = ∞ | e | = 0 Elastic range

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Principles of Microeconomics Shomu Banerjee Emory University Fall 2011 5. Elasticities
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Price elasticity of demand e is always negative or zero | e | < 1: inelastic | e | > 1: elastic | e | = 1: unitary elastic e = %∆ in quantity demanded %∆ in price
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Incidence revisited Price Quantity 0 10 10 4 5 Supply Demand Effective supply 6 2 $3 Quantity 0 10 10 4 5 Supply Demand Effective supply 6 2 $3 Price
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Incidence revisited Price Quantity 0 10 10 3 5 Supply Demand Effective supply 6 2 $3 Price Quantity 0 10 10 3 5 Supply Demand Effective supply 6 2 $3
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Pass-through The more inelastic the demand The more elastic the supply
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Price elasticity and revenues Price Quantity 0 10 10 3 7 Demand 4 6 Midpoint A B C
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Price elasticity and revenues Price
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Unformatted text preview: Quantity 10 10 7 4 Demand 6 3 Midpoint A B C Price elasticity and linear demand Price Quantity 10 10 Demand | e | = 1 | e | = ∞ | e | = 0 Elastic range Inelastic range Income elasticity of demand • e i could be negative, zero or positive • e i < 0: inferior good • e i > 0: normal good e i = %∆ in quantity demanded %∆ in income Cross-price elasticity of demand • e xy > 0: x and y are substitutes • e xy < 0: x and y are complements • e xy = 0: x and y are unrelated e xy = %∆ in quantity demanded of x %∆ in price of y...
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This note was uploaded on 10/17/2011 for the course ECON 101 taught by Professor Dezhbakhsh during the Fall '07 term at Emory.

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5.Elasticities - 7 4 Demand 6 3 Midpoint A B C Price elasticity and linear demand Price Demand | e | = 1 | e | = ∞ | e | = 0 Elastic range

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