Economics Chapter 5 Notes
Economics Chapter 5 Notes Eco 280
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This 4 page Class Notes was uploaded by Haley Morse on Wednesday September 21, 2016. The Class Notes belongs to Eco 280 at Northern Arizona University taught by Andrew Parkes in Fall 2016. Since its upload, it has received 16 views. For similar materials see Introduction to Economics in Economics at Northern Arizona University.
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Date Created: 09/21/16
Chapter 5 Chapter Objective: How to calculate price elasticity of demand and how this relates to total revenue (Sales) Price Elasticity of demand: The responsiveness, or sensitivity, to a change in price, the ratio of the percentage change in the quantity demanded of a product to a percentage change in its price E d (% in Q demanded)/% in price The law of demand that quantity demanded and price are inversely related Percent change is the difference between the 2 numbers divided by the original number ( in quantity demanded/sum of quantities/2)/( in price/sum of prices/2) Elastic Demand: A condition in which the percentage change in quantity demanded is Greater than the percentage change in price Inelastic demand: The percentage in the quantity demanded is less than the percentage change in price Unitary Elastic demand curve: The percentage change in the quantity demanded is equal to the percentage change in price Elastic: things that can be substituted for something else Inelastic: Things that you can’t get rid of easily-gasoline Perfectly elastic demand curve: An extreme condition in which a small percentage change in price brings about an infinite percentage change in the quantity demanded, another extreme condition in which the quantity demanded does NOT change as the price changes Price elasticity varies along a demand curve: The price elasticity of demand coefficient of demand applies only to a specific range of prices along the demand curve Factors that influence demand elasticity: 1. Availability of substitutes 2. Share of budget on the product 3. Adjustment to a price change over time The more substitutes a product has, the more sensitive consumers are to a price change, and the more elastic the demand curve The price elasticity of demand is directly related to the availability of good substitutes for a product In general, the price elasticity coefficient of demand is higher the longer a price change persists
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