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Lecture

glossary of elasticities.docx

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Department
Economics
Course
Economics 1021A/B
Professor
Brendan Murphy
Semester
Fall

Description
The price elasticity of demand is a units-free measure of the responsiveness of the quantity demanded of a good to a change in its price when all other influences on buying plans remain the same. It is calculated by: (Change in Quantity Demanded/ Average Quantity Demanded) (Change in Price/ Average Price) Price Elasticites of Demand A relationship is When its Which means that.. Total Your Total described as.. magnitude Revenue and Expenditure and Revenue is.. Elasticity Your Elasticity Test Perfectly elastic Infinity The smallest possible increase in price causes an infinitely large decrease in the quantity demanded (ex. two pop machines beside each other) Elastic Less than The percentage decrease in the quantity A 1% price Infinity demanded exceeds the percentage increase cut increases A 1% price cut If a price in price (ex. automobiles and the quantity increases the cut furniture..demand decreases with rise in sold by more quantity you buy increases price, demand increases with fall in price) than 1% and by more than total total revenue 1% and your revenue, increases expenditure on demand is the item elastic increases Unit Elastic 1 The percentage decrease in the quantity A 1% price A 1% price cut If a price demanded is less than the percentage cut increases increases the cut leaves increase in price (change in one causes the quantity quantity you buy total equal change in another) sold by 1% by 1% and your revenue and total expenditure on unchanged, revenue does item does not demand is not change change unit elastic Inelastic Less than The percentage decrease in the quantity A 1% price A 1% price cut If a price 1, but demanded is less than the percentage cut increases increases the cut greater increase in price (ex. food and the quantity quantity you buy decreases than zero shelter..demand does not increase or sold by less by less than 1% total decrease with a fall or rise in price) than 1% and and your revenue, total revenue expenditure on demand is decreases the item inelastic decreases Perfectly Zero The quantity demanded is the same at all Inelastic prices (ex. insulin) Factors That Influence the Elasticity of Demand  The Closeness of Substitutes: the closer the substitutes for a good or service, the more elastic is the demand for it (necessities generally have inelastic demand whereas luxuries generally have elastic demand)  Proportion of Income Spen
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