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by: Jordan Derby

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# Elasticity 12200

Jordan Derby
IC
GPA 3.595

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Elasticity: Supply and Demand
COURSE
Principles of Economics: Microeconomics
PROF.
Elizabeth Kaletski
TYPE
Class Notes
PAGES
2
WORDS
CONCEPTS
Microeconomics Notes
KARMA
25 ?

## Popular in Economcs

This 2 page Class Notes was uploaded by Jordan Derby on Wednesday March 2, 2016. The Class Notes belongs to 12200 at Ithaca College taught by Elizabeth Kaletski in Spring 2016. Since its upload, it has received 20 views. For similar materials see Principles of Economics: Microeconomics in Economcs at Ithaca College.

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Date Created: 03/02/16
Elasticity: Supply and Demand Elasticity- a numerical measure of the responsive Qd or Qs to one of its determinants • Measures how much one variable responds to changes to another variable • One type of elasticity measures how much demand for your websites will fall if you raise your price Price of Elasticity in Demand- measures how much Qd responds to a change in P • Price of Elasticity in Demand = Percentage change in Qd/Percentage change in P • Anything above 1.0 = Really Responsive Calculating Percentage Changes: Midpoint Method- Percentage of Change in P = new price – initial price ((new price + initial price)/2) X 100 Lessons: Price elasticity is higher when close substitutes are available • You respond (responsive) more when there are more substitutes Price elasticity is higher for narrowly defined goods than for broadly defined ones Price elasticity is higher for luxuries than for necessities Price elasticity is higher in the long run than in the short run Price elasticity is higher for goods that are a larger portion if income spent The Variety of Demand Curves • The  price  of  elasticity  of  demand  is  closely  related  to  the  slope  of  the  demand   curve   • Rule  of  Thumb:   o The  Flatter  the  Curve  =  The  Bigger  the  Elasticity   o The  Curvier  the  Curve  =  The  Smaller  the  Elasticity   • “Perfectly  inelastic  demand”  customers  don’t  respond  (Qd  is  0)   o Does  not  truly  exist   • “Inelastic  Demand”  =  >1     • “Unit  Elastic”  =  1   • “Elastic”  =  <1   • “Perfectly  Elastic”  =  Infinity  (P  is  0)       Price  Elasticity  and  Total  Revenue   • Revenue=  P  x  Q   • As  Price  increases:   o Higher  P  means  more  revenue  on  each  unit  you  sell   o But  you  sell  fewer  units  (lower  Q),  due  to  Law  of  Demand     Price  Elasticity  of  Supply  –  measures  how  much  Qs  responds  to  a  change  in  P   • Measures  sellers’  price-­‐sensitivity       Income  Elasticity  of  Demand  –  measures  the  response  of  Qd  to  a  change  in   consumer  income   • IED  =  %  Change  in  Qd  /  %  Change  in  Income     Cross-­‐price  Elasticity  of  Demand  –  measures  the  response  of  demand  for  one  good   to  changes  in  the  price  of  another  good   • C-­‐PED  =  %  Change  in  Qd  for  Good  1  /  %  Change  in  P  for  Good  2   • For  substitutes,  cross-­‐price  elasticity  >  0   • For  complements,  cross-­‐price  elasticity  <  0

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