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# Chapter 6 Elasticity Notes ECON 142

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This 6 page Class Notes was uploaded by Kieran Notetaker on Tuesday September 29, 2015. The Class Notes belongs to ECON 142 at Kansas taught by Dr. Brian Staihr in Summer 2015. Since its upload, it has received 96 views. For similar materials see Microeconomics in Economcs at Kansas.

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Date Created: 09/29/15

Chapter 6 Elasticity Vocab ELASTICITYResponsiveness Price Elasticity of Demand responsiveness of the quantity demanded to a change in price measured by dividing the percentage of a product by the percentage change in product s price Price elasticity of demand percent change in QDpercent change in price Elastic Demanddemand is elastic when the percent change in OD is greater than percent change in price Absolute value is greater than 1 Inelastic Demand demand is inelastic when percent change in OD is less than percent change in price Absolute value is less than 1 Unitelastic demand when the percent change in OD is equal to percent change in price Equal to 1 in absolute value Perfectly Inelastic Demand the case where QD is completely unresponsive to price and the price elasticity of demand equals zero Perfectly Elastic Demand case where QD is responsive in nitely Equals in nity Total Revenuethe total amount of funds a seller receives from selling a goodservice calculated by multiplying price per unit by number of units sold Cross price elasticity percent change QD of good X percent change price of good Y Income Elasticity of Demand percent change of QD percent change of income Price Elasticity of Supply percent change 05 percent change in price TABLESFORMULAS Absolute Value of Price Effect on Toal Revenue Elasticity Elastic Greater than 1 Total Revenue Falls Inelastic Less than 1 Total revenue increases Unit Elastic Equal to 1 Total revenue unchanged Cross Price Elasticity of Demand Percent change QD of one good percent price change of other good Types of Products Value of CrossPrice Elasticity Substitutes Positive Complements Negative Unrelated Zero Income Elasticity percent change in QD percent change in income Types of Products Value of Income Elasticity Normal and a necessity Positive but less than 1 Normal and a luxury Positive and greater than 1 Inferior NegaUve Price Elasticity of Supply percent change in 05 percent change in price Value of Price Elasticity Elastic Greater than 1 Inelastic Less than 1 Unit Elastic Equal to 1 MIDPOINT FORMULA steps 1 Find average quantity 5QlQZ 2 Find average price 5P1P2 3 Find Percent change in OD QZQl average quantity 100 4 Find Percent change in Price P2P1average price 100 5 Divide percent change in OD by percent change in Price 6 Take absolute value to nd elasticity Midpoint Example lly ul lull3 umIda 39II o hndmdmih u I 7m 7 In Fm 9 I39 I M thyarr i 1mm 39 calculi IN N elf m 5 k39um II arm mm m u mm in mumd n Ilse mm In a 15an I mrink lhdi h39tuwlm 1 a 39 15 I ml 5 DIEIll DISHg nod quoth PM I39ll 1 1m 2M1 IlHj s u lwd m n W i 455 5qu me U 13H a I 1 Li L 1 ilip I Will Hm liftIlla mhn39r39 m quotw upml s I llld lquot M f ml l d r r 7 n 39 quotquotV quot39l PM It urlu ml m Jul much u rquot nun I a uquot 39l lm u an H r IllI JJLK F II will Huh wl 39 ljI p q Q ll I lliui wlwdnm fill ilfr39 A39 ll 393 39VI lII In 3quot I Slap E h An allquot Ill7 quotski than Mud madmanr llnI lumlm they lliil pmquot I nrrugclim lInpamulrlruntt H 4 III M 1 mm MN I r I 39Lm H U u r31 r ml I1 1 m w III quot4 i I i P I 39 5 u l P ll ih rquot 1ta1 39l lhill 21 5 Mn be live Mull1T I If l hnn l n Mild quotIquot l h w quotMWquot lmr1 u fin with In M m vrpmd o U or an mu Mun Demand Gilli IW Iho Hal B My lama1M mm alumsyum ulnau nu ulnar 39 may I hin l Iml mhlh Wh d l l a laullm l 39 quoti tum1 unturnth 7 IT T JH 7 H as Determinants of Price Elasticity of Demand 1 Availability of Substitutes 2 3 4 5 a Lots of substitutes elastic b Few Substitutes inelastic De nition of the market a Market is narrow elastic example is Conoco gasoline I can switch to Valero b Market is not narrow inelastic gasoline as a whole Share of a good in a budget a Big part of budget elastic houses cars etc b Small part inelastic salt ramen pencils Passage of time a More time passes elastic b Short amount of time inelastic Luxuries vs Necessities a Luxury elastic b Necessity inelastic Percent of tax that will fall onto buyer supply elasticitysupply elasticity demand elasticity

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