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Unformatted text preview: Exam 2 Notes Elasticity- The numerical measure of the responsiveness of Q^D or Q^S to one of its determinants Price Elasticity of Demand- The ratio of the % change in the quantity demanded to the % change in the price as we move along the demand curve Equation Price Elasticity of Demand=% change in Q^D/ % change in P Or =(Q2-Q1/Q Average)/(P2-P1/P Average) Calculating % Change-End value-Starting value/Start value * 100% Midpoint Method-End value-Starting value/(Start+End/2) * 100% Elasticity Types- Inelastic demand=<1 or less than 1-Elastic demand=>1 or greater than 1-Unit Elastic= 1 Perfectly inelastic-When the Qd does not respond at all to changes in the price (Demand curve is a vertical line) Perfectly elastic- When any price increase will cause the Qd to drop to zero. (Demand curve is a horizontal line) Predicts how changes in price will affect the total revenue Total Revenue- Price * Quantity sold A Price Effect-After a price increases, each unit sold sells at a higher price, tends to raise revenue...
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This note was uploaded on 02/06/2012 for the course ECONS 101 taught by Professor Michalski during the Fall '08 term at Washington State University .
- Fall '08