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Econ 201 Lecture 6 Notes

by: Samantha Shea

Econ 201 Lecture 6 Notes ECON 201

Samantha Shea

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About this Document

These notes cover what was talked about in class on Wednesday, September 21st.
Micro Economics
Professor Liedholm
Class Notes
Lecture Notes, Microeconomics, elasticity
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This 2 page Class Notes was uploaded by Samantha Shea on Wednesday September 21, 2016. The Class Notes belongs to ECON 201 at Michigan State University taught by Professor Liedholm in Fall 2016. Since its upload, it has received 4 views. For similar materials see Micro Economics in Microeconomics at Michigan State University.

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Date Created: 09/21/16
Lecture  6  Notes Wednesday,  September   21,  2012:41  PM • Today: ○ Other  elasticity  measures ○ Uses  of  elasticity • Other  elasticity  measures  relating  to  demand ○ Income  elasticity  of  demand ○ Cross  price  elasticity  of  demand • Income  elasticity  of  demand  is  the  percent  change  in  quantity  demanded   divided  by  a  percent  change  income: ○ E(i)=  %  change  in  Q %  change  in  I ○ Income  elasticity  of  demand  will  be  positive  for  normal  goods  (+) ○ Negative  for  inferior  goods  ( -­‐) • Cross  elasticity  of  demand ○ =  percentage  change  in  Q(a)        percentage  change  in  P(b) ○ Substitutes  (+) ○ Complements  (-­‐) • Importance/  Uses  of  Elasticity 1. Estimating  (predicting)  changes  in  dd   antities 2. Estimating  (predicting)revenuechanges • Predicting  QuantityChanges  from  Price Change ○ %  change  in  Q(d)=  -­‐ (E(d))  (%  change  in  Price) • Predicting  Quantity  changes  f  ncome  changes ○ Change  in  Q(d)  =  (E(i))  (%change  in  income) • Total  Sales  Revenue ○ (Price)  (Quantity)  =  Total  Sales  Revenue • Elasticity,  price,  and  Total  Revenue Percent  Change Percent  Change Percent  Change Elasticity Price Quantity Revenue Elastic  >1 Up,  down Down,  up Down,  up  (inverse) Unitary  = Up,  down Down,  up   No  change Inelastic  <1 Up,  down Down,  up Up,  down  (direct) Elasticity Price Quantity Revenue Elastic  >1 Up,  down Down,  up Down,  up  (inverse) Unitary  = Up,  down Down,  up   No  change Inelastic  <1 Up,  down Down,  up Up,  down  (direct) • Elasticity  and  Revenue ○ If  elastic demand,  price  and  total  revenue   INVERSELY related ○ If  inelastic demand,  price  and  total  revenue   DIRECTLYrelated ○ If  unit  elastic  demand,  price  and  total  revenue  effect  is  zero


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