ECON110 Microeconomic Chapter 5 Notes
ECON110 Microeconomic Chapter 5 Notes ECON 110
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This 2 page Class Notes was uploaded by Lauren Heller on Wednesday February 3, 2016. The Class Notes belongs to ECON 110 at University of Alabama - Tuscaloosa taught by Dr. Harold elder in Summer 2015. Since its upload, it has received 20 views. For similar materials see Principles of Economics in Economcs at University of Alabama - Tuscaloosa.
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Date Created: 02/03/16
Micro- Chapter 5 Notes Elasticity- to measure how much consumers respond to changes in variables Elasticity of demand- how much the quantity demanded responds to a change in price Demand for a good is said to be elastic if quantity demanded responds substantially to changes in price Demand for a good is said to be inelastic if quantity demanded responds only slightly to changes in the price Price elasticity of demand- percentage change in quantity demanded divided by percentage change in the price use midpoint method to find this: (Qd2 - Qd1) / [(Qd2 + Qd1) / 2] / (P2 – P1) / [(P2 + P1) / 2)] Elastic demand Demand curve: relatively flat Consumers’ price sensitivity: relatively high Elasticity: >1 (greater than 1) Inelastic demand Demand curve: relatively steep / vertical Consumers’’ price sensitivity: relatively low Elasticity: <1 (less than 1) Unit Elastic Elasticity: 1 (equal to 1) Perfect inelastic demand Demand curve: vertical Consumers’ price sensitivity: none Elasticity: 0 (equal to zero) Perfectly elastic demand Demand curve: horizontal Consumers’ price sensitivity: extreme Elasticity: infinity (equal infinity) Total revenue- the amount paid by buyers and received by sellers of a good Found by multiplying price times quantity Income elasticity of demand- measures how the quantity demanded changes as consumer income changes Found by: percentage change in quantity demanded divided by percentage change in income If income elasticity is positive, it is a normal good If income elasticity is negative, it is an inferior good Cross-price elasticity of demand- measures how the quantity demanded responds to a change in price of another good Found by: percentage change in quantity demanded of good 1 divided by percentage change in price of good 2 If cross-price elasticity is negative, goods are complements If cross-price elasticity is positive, goods are substitutes Price elasticity of supply- measure how much quantity supplied responds to change in the price Found by: percentage change in quantity supplied divided by percentage change in price THINGS TO REMEMBER WITH ELASTICITY Goods with close substitutes tend to have a more elastic demand Necessities tend to be inelastic Luxuries tend to be more elastic than necessities Elastic is higher in the long run than short run Elasticity is higher when goods are narrow than broad
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