Number of uses for the product a good with multiple

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Number of uses for the product A good with multiple uses will be more inelastic. Addiction/habit forming Other determinants of the PED:
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PED & REVENUE: Increase in Price Decrease in Price PED<1 Revenue increases Revenue decreases PED=1 Unchanged Unchanged PED>1 Revenue decreases Revenue increases
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PED & REVENUE: Q 1 Price (rands) D 1 P 1 unitary elastic @ mid pnt On a linear demand curve, revenue is maximized at the point of unit elasticity the midpoint . The revenue remains constant at all points on a rectangular hyperbola demand curve. Q 1 Price (rands) unit elastic curve D 1 P 1 CAN YOU PROVE THESE?
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Total revenue and elasticity Q 1 Total revenue MAXIMUM REVENUE Quantity Remember profit and revenue are NOT the same things!
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Price elasticity of demand Q 3 Q 1 P 1 P 3 Price (rand) D 1 Q BEER Q 1 Q 2 P 2 Price (rand) D 1 Q BEER How responsive is quantity demanded to a change in price? What happens if we consider identical changes in supply along two different demand curves? S 1 S 1 S 2 S 2 P 1
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Income elasticity of demand Measures the responsiveness of the quantity demanded to changes in income. Normal Goods have +ve Y elasticity Inferior goods have -ve Y elasticity
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NORMAL LUXURY NORMAL NECESSITY INFERIOR Income elasticity of demand
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Cross elasticity of demand Measures the responsiveness of the quantity demanded of a particular good to changes in the price of a related good. Substitutes: positive cross elasticity Complements: negative cross elasticity If goods are unrelated, the cross elasticity is close to 0
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v s Cross elasticity of demand
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PED is a unit free measure of responsiveness of quantity supplied to price changes PRICE ELASTICITY OF SUPPLY:
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Supply Curves with constant PES Price Quantity S 2 - elasticity = ∞ Price Quantity D 3 - elasticity = 1 Price Quantity S - elasticity = 0 1 Perfectly elastic eg. cheeseburgers at McDonalds today If elasticity is between 1 and ∞, we say supply is relatively ELASTIC If elasticity is between 0 and 1, we say supply is relatively INELASTIC Unit elastic unit elasticity holds for any linear supply curve Perfectly inelastic eg. supply of land, Picasso paintings
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What influences elasticity of supply? Time frame for supply Momentary supply curve: immediate response of quantity supplied Short-run supply curve: some adjustments have occurred (usually labour) Long-run supply curve: all possible technological changes have occurred Supply becomes increasingly elastic over time Also, stockpiling and capacity to find inputs .
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