econ midterm sample

econ midterm sample - Elasticity Elasticity measures how...

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Elasticity Elasticity measures how much one variable responds to changes in another variable. Price elasticity of demand measures how much Q d responds to a change in P . Income elasticity of demand : measures the response of Q d to a change in consumer income ± For normal goods, income elasticity > 0. ± For necessities, it is between 0 and 1 ± For luxury goods, it is greater than 1 ± For inferior goods, income elasticity < 0. Cross-price elasticity of demand : measures the response of demand for one good to changes in the price of another good Price elasticity of supply measures how much Q s responds to a change in P . x To find the % change for Elasticity, use the midpoint formula Determinants of Price Elasticity x Availability of close substitutes o Breakfast cereal (more) vs. Sunscreen (less) x Necessities vs. luxuries o A Caribbean Cruise (more) vs. Insulin (less) x Definition of the market o Market for blue jeans (more) vs. Market for clothing (less) x Share of consumer’s budget
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econ midterm sample - Elasticity Elasticity measures how...

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