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ECON110 Microeconomic Chapter 5 Notes

by: Lauren Heller

ECON110 Microeconomic Chapter 5 Notes ECON 110

Marketplace > University of Alabama - Tuscaloosa > Economcs > ECON 110 > ECON110 Microeconomic Chapter 5 Notes
Lauren Heller
GPA 4.0

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About this Document

These notes were taken directly from the microeconomics textbook, with additional material covered in class by professor.
Principles of Economics
Dr. Harold elder
Class Notes
econ110, micro, Microeconomic, Econ, Economics
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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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