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M ICROECONOMICS 1

GROUPS C & D

LECTURE 6

ELASTICITY

TEXT: Ch 4

OUTLINE:

1. PRICE ā ELASTICITY OF DEMAND

2. ELASTICITY AND REVENUE

3. OTHER ELASTICITIES

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ELASTICITY

Definition: A measure of the responsiveness of one variable

to changes in another variable, cet. par.

1. PRICE ELASTICITY OF DEMAND

%āQD āQD / QD P . āQ

%āP āP / P Q āP

= P/Q Ć 1/slope of D curve

Īµ = absolute value of elasticity

P

D

Q of X

Īµ absolute value of price-elasticity of demand:

ā increases up the D curve

ā increases the flatter the D curve

D for commodity X is more price elastic :

ā the closer the substitutes

ā the stronger the income effect

- the longer the time period

==

%

%

ā

ā

Q

P

D

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