Ch. 6 Notes
Ch. 6 Notes EC 110
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This 2 page Class Notes was uploaded by Grace Heinerikson on Thursday October 6, 2016. The Class Notes belongs to EC 110 at University of Alabama - Tuscaloosa taught by Dr. Tao Chen Yeh in Fall 2016. Since its upload, it has received 9 views. For similar materials see Microeconomics in Economics at University of Alabama - Tuscaloosa.
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Date Created: 10/06/16
Ch. 6 Demandand Elasticity Vocabulary: Elasticity:a measureofthe responsivenessinonevariabletochanges in another,othervariablesheldconstant. Price ElasticityofDemand: responsivenessofdemanddueto changesin price (%∆Q ÷ %∆P). Perfectly Inelastic/Elastic:theformer occurs when price (independent variable)affects demandnotatall;the latterwhen thesmallestshiftin IV causes totaldropindemand. Income ElasticityofDemand:(%∆Q ÷ %∆I) whenE < 0,the go1dis inferior.WhenE >1the good is normal.When0< E < 1, th1good is a necessity.When E >11, thegood is a luxurygood. Cross-Price ElasticityofDemand: sensitivityofdemandfor good Xwhen there is a price change ingood Y. (%∆Q ÷ %∆P ) (i.e. complementsvs. X Y substitutes). S ElasticityofSupply:(%∆Q ÷ %∆P) If 0 < E < 1,S is inelastic.IfE > 1, Sis elastic. Tax Incidence:the real taxburden,shared byproducersandconsumers. Main Ideas: Price Elasticity:whenprice goes up,are consumersbuyingmore thanthe relativechange in price, less,or the same? o Because elasticityisscale dependent,slopeisnota good indicator. o Constantslopedoesnotequalconstantelasticity. o Helps firms determinewhetherrise in Pwill increaseTotal Revenue. Cross-Price ElasticityofDemand: o If EXY 0, thenX & Y are substitutes. o If E < 0,thenX & Y are complements. XY o Tellsus the extentto which two goodsare in competition. Tax Incidence:who pays the realburdenofa tax? o Whendemandis more elastic,producerpays more. o Whendemandis more inelastic,consumerpaysmore. 2
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