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Unformatted text preview: Elasticities, SR/LR, Sales Taxes Curve Shapes ) Shapes of the curves (demand, supply) matter for the effects of changes ) Especially needed for quantitative predictions ) In this lecture we are going to see: A set of key measures of the sensitivity of our curves to the relevant variables How these measures change over time Application: How to use these measures to predict tax effects Elasticities Demand ) Price elasticity of demand / ¡ percentage change in quantity demanded percentage change in price ¡ ¡ Q / Q p / p ¡ ¡ p Q Q p Recall that, if Q ¡ d " bp , Q p ¡ " b and hence / ¡ " p Q b ) Elasticity can change along the curve: in the linear case elasticity increases as price increases ) Demand curves: elastic, perfectly elastic and inelastic ) Other elasticities: Income elasticity percentage change in quantity demanded percentage change in income ¡ Y Q Q Y Crossprice elasticity percentage change in quantity demanded percentage change in price of another good ¡ p Q Q p Supply...
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This note was uploaded on 02/06/2012 for the course ECONOMICS 201 taught by Professor Jaumandreu during the Fall '09 term at BU.
 Fall '09
 JAUMANDREU

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