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Unformatted text preview: This formula will give you an approximation of the elasticity over a range, instead of a point-specific elasticity, but as the range gets larger, the result becomes less and less accurate, which is why many economists prefer to use the traditional measure of elasticity. It is a little difficult to visualize why elasticity is not constant on a straight-line graph without looking at a diagram. In , the slope of this hypothetical straight-line supply curve is constant (slope = 2), but the elasticity changes as you move along the graph. Let's assume that the price of this good is initially $3, and then increases to $5. In this case, the elasticity for the good can be calculated as follows: Elasticity = (% Change in Quantity) / (% Change in Price) Elasticity = [(2 - 1)/1] / [(5 - 3)/3] = 3/2 If the price increases from $5 to $7 however, the elasticity is calculated as follows:...
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This note was uploaded on 12/13/2011 for the course ECO 1320 taught by Professor Staff during the Fall '11 term at Texas State.
- Fall '11