5 Econ Class notes

5 Econ Class notes - 3. Definition of the market-more...

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Ch. 5 Elasticity and its applications 1. Elasticity of demand i. A measure of the responsiveness of QD to one of its determinants ii. How sensitive are changes in determinants to D? iii. Racquetball is more elastic than squash ball iv. Elastic markets, QD is changed significantly with increase in price v. Inelastic markets, QD is not changed very much with increase in price b. Price elasticity of demand i. Determinants 1. necessities vs. luxuries a. necessities i. water, oxygen, prescription drugs, clothes, food ii. Inelastic iii. Insensitive to changes in price b. luxury i. fancy cars, champagne, yacht, ipods, caviar, plastic surgery ii. Elastic iii. Sensitive to change 2. Availability of close substitutes a. More close substitutes means more elastic
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Unformatted text preview: 3. Definition of the market-more specific, more elastic a. Narrowly defined i. Nikes ii. More elastic b. Broadly defined i. Sneakers 4. Time horizon a. How long you have to react to a change in price i. Longer time horizon 1. elastic ii. Shorter time horizon 1. inelastic b. For gas, it is more elastic if you have long time to get it c. For apartments, more elastic if you have 6 months to move rather than a few weeks c. Elastic graphs, very shallow line, almost horizontal d. Inelastic graphs, very steep line, almost vertical e. Perfectly elastic, horizontal line f. Perfectly inelastic, vertical line...
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