Micro 5 - Chapter 5 The Elasticity of Demand -Elasticity: a...

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Chapter 5 The Elasticity of Demand -Elasticity: a measure of the responsiveness of quantity demanded or quantity supplied to one of its determinants The Price Elasticity of Demand & Its Determinants -Price Elasticity of Demand: A measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price -Demand for a good is said to be elastic if the quantity demanded responds substantially to changes in the price -Demand is said to be inelastic if the quantity demanded responds only slightly to changes in prices. General Rules Regarding What Determines The Price of Elasticity Demand 1) Availability of close substitutes -Goods with close substitutes tend to have more elastic demand because it’s easier for consumers to switch from that good to another 2) Necessities vs. Luxuries -Necessities tend to have inelastic demands -Luxuries tend to have elastic demands 3) Definition of Market -Narrowly defined markets tend to have more elastic demand that broadly defined markets because it’s easier to close substitutes for
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This note was uploaded on 02/08/2012 for the course ECONOMICS 220:102 taught by Professor Zhang during the Fall '09 term at Rutgers.

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Micro 5 - Chapter 5 The Elasticity of Demand -Elasticity: a...

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