Elasticity

# Elasticity - Elasticity Law of Demand Demand curves are...

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Elasticity Law of Demand:   Demand curves are  downward-sloping. Law of Supply:  Supply curves are upward- sloping.

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20 22 \$150 \$100 Q P 20 60 Q P D D Market A Market B Consumers are much more  responsive  to price in  Market B than in Market A.
Elasticity A measure of responsiveness of one economic variable  to changes in another economic variable. Price Elasticity of Demand:   A measure of the  responsiveness of quantity demanded to changes in  price. P % Q % E d D = (Percentage change in quantity demanded) /(Percentage change  in price)

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The price elasticity tells us the percentage change in  quantity demanded in response to a 1% change in price.   If E D  = -2, then a 1 % change in price causes a 2%   change in quantity demanded. Or a 5% change in price causes a 10% change in  quantity demanded. And so on.
The Price Elasticity of Demand  will be negative  because price and quantity demanded are inversely  related ( Law of Demand ). Since we know this, we are interested in the  absolute  size  of the elasticity rather than the sign.  So it is  common to report the absolute value of the elasticity.

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Elasticity - Elasticity Law of Demand Demand curves are...

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