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Unformatted text preview: Kristin Chen Econ Ch 5--Elasticity 1. Defining & Measuring Elasticity a. Price elasticity of demand = % in quantity demanded % in price i. Price elasticity of demand = [Q2 Q1] / [(Q1 + Q2)/2] [P2 P1]/ [(P1+P2)/2] ii. Usually negativeabsolute value b/c measure of magnitude iii. highly elastic = when price elastic of demand is large when consumers change their quantity demanded by a large percentage compared with the percent change in the price iv. inelastic - quantity demanded will fall by a relatively small amount when price rises v. M idpoint method : % in X = in X (100) Average value of X 1. Average value of X = starting vale of X + final value of X vi. Point slope P x 1 Q m 2. How Elastic is Elastic? a. Perfectly inelastic demand = quantity demanded is unresponsive to price i. Demand curve is a vertical line b. Perfectly elastic demand = quantity demanded is infinitely responsive to price i. Demand curve is a horizontal line c. Elastic : price elasticity of demand > 1 d. I nelastic : price elasticity of demand < 1 e. Unit-elastic : price elasticity of demand = 1 ---- normal goods are unit elastic f. Total revenue = price x quantity sold i. Total value of sales of a good or service...
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