Chapter Five

Chapter Five - PRINCIPLES of MICROECONOMICS by N. Gregory...

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PRINCIPLES of MICROECONOMICS by N. Gregory Mankiw (4 th Edition) Chapter Five Outline CHAPTER FIVE: ELASTICITY AND ITS APPLICATIONS The Elasticity of Demand Price Elasticity of Demand and its Determinants - Elasticity – A measure of the responsiveness of quantity demanded or quantity supplied to one of 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, computer as the percentage change in quantity demanded divided by the percentage change in price o Demands for goods is said to be elastic if the quantity demanded responds substantially to changes in the price o Demand is said to be inelastic if the quantity demanded responds only slightly to changes in the price - General rules about what determines PED o Availability of close substitutes Goods with close substitutes tend to have more elastic demand because it is easier for consumers to switch from that good to others o Necessities versus Luxuries Necessities tend to have inelastic demands whereas luxuries have elastic demands o Definition of the market Elasticity of demand in any market depends on boundaries of market Narrowly defined markets tend to have more elastic demand than broadly defined markets because it is easier to find close substitutes for narrowly defined goods
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Chapter Five - PRINCIPLES of MICROECONOMICS by N. Gregory...

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