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Lecture

# ECON103 Lecture #5.docx

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School
Department
Economics
Course
ECON 103
Professor
Iryna Dudnyk
Semester
Fall

Description
Lecture #5 Elasticity(E) -measures how responsive quantity(Q) is to changes in Income(M) and Price’s(P) Elasticity: (E)>0=>positive relationship (E)<0=>negative relationship (E)=0=>no elasticity Large E=>Q is “sensitive” (Own-Price)Elasticity of Demand E-by how many percent Quantity Demanded(Q ) chadges in response to one percent change in price(P) Example: FIGURE 2.0 Price(P)=5 Quantity(Q)=20 Price(P)=7.5 Quantity(Q)=5 Arc elasticity -Use percentage change between 2 points; value depends on which point is initial See Written for formula FIGURE 2.1 Point E -Calculated for one point on the demand curve Example: See written FIGURE 2.2 Elasticity Summary: -when Price increases, Quantity decreases=> own price elasticity is always negative -Use absolute value lEl -if lEl>1 =((change in %Q)/ (change in %P))>1 (change in %Q)> (change in
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