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Principles of Micro Economics: Elasticity

by: Dasmine Ferrer

Principles of Micro Economics: Elasticity Econ 103

Marketplace > Pace University > Economcs > Econ 103 > Principles of Micro Economics Elasticity
Dasmine Ferrer
GPA 3.1

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About this Document

Elasticity of supply and demand
Principles of Economics: Microeconomics
Anna Shostya
Class Notes
elasticity, Microeconomics, pace, Shostya
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This 3 page Class Notes was uploaded by Dasmine Ferrer on Wednesday February 24, 2016. The Class Notes belongs to Econ 103 at Pace University taught by Anna Shostya in Winter 2016. Since its upload, it has received 20 views. For similar materials see Principles of Economics: Microeconomics in Economcs at Pace University.

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Date Created: 02/24/16
2/20/16 Principles of Micro-Economics Notes: Elasticity Elasticities: measures of sensitivity or responsiveness in changes of two prces.  Price change  Income change Price Elasicity of Demand Formula: E(D over P)= % Change of Qd --------------------- % Change of P  *increase in price, decrease in quantity (negative slope)  Elasticity is Not a slope, it will change along the slope  More sensitive means elasticity is >1 5 Types of Elastic Demand  Relatively Elastic: %change in Qd> %change in price o Flatter slope o Elasticity of Demand>1  Relatively Inelastic: percent change in Qd < % change in Price o Elasticity of Deman is <1 o Steep Slope  Perfectly Inelastic: Percent change in Qd=0 o Elasticity in demand=0 o Vertical Slope  Perfectly Elastic: %change in price -> 0 o Horizontal Slope o Mathematically Undefined (bc the denominator would be zero.)  Unitary Elastic: %change in Qd= %change in price Determinants of Ep Elastic (Flatter) Inelastic (Steeper)  Luxuries  Necessities Example: Vanilla Ice Cream vs. Example: Vanilla Ice Cream vs. groceries Groceries  Many Substitutes  Not many Substitutes Example: Vanilla Ice Cream can be Example: Food is inelastic because substituted by not only other it is a necessity and doesn’t have foods, but other flavors. (Many many substitutes. Substitutes)  Short-Run  Long-Run Example: With public Example: If your car breaks down, transportation, it will take longer there are more substitutions in the to get a new car, so public long run. You have long time to transportation is the only option. get a new car and to use public transportation. Two ways to Calculate Ep 1) Point Elasticity of Demand (When we know the direction) Q2-Q1 ----------- Q1+Q2 ----------- Formula: E (D over P)= % Change of Qd = 2 ------------------------------- % Change of P P2-P1 ------------- P1+P2 ------------- 2 2) Arc Elasticity of Demand (When we don’t know the direction) Q2-Q1 ----------- Q1+Q2 ----------- Formula: Arc (D over P)= % Change of Qd = 2 -------------------------------- % Change of P P2-P1 ------------- P1+P2 ------------- 2 Income Elasticity of Demand Income Elasticity of Demand- how sensitive consumers are to change on income - Depends on inferior or normal good -Income increases, Quantity Demand Decreases Formula: E (D over I)= % Change of Qd --------------------- % Change of I The Cross Elasticity of Demand The Cross Elasticity of Demand- how responsive/sensitive the consumers of one good (x) are to change another good (y) - Negative and Positive depend on if goods are substitutes of compliments Formula: E (X Y)= % Change of QdX --------------------- % Change of Py


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