Business Administration 3321K Lecture Notes - Marginal Revenue, Arc Elasticity, Harvest

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Definition: elasticity measures the responsiveness of a change in a variable to the change in another variable. Definition: price elasticity of demand (h ) is equal to the ratio of the percentage change in quantity demanded to the percentage change in price (responsible for that percentage change in quantity demanded) = %d qd/%d p e. g. if a 20% increase in the price of gasoline causes a 10% decrease in the quantity demanded of gasoline, then e = -10%/+20% = -0. 5. I will not use the absolute value expression of elasticity because the sign has significance, particularly in relation to other types of elasticity. => %d qd/%d p < 1 i. e. the percentage response of quantity is less than the percentage change in price: unit elastic. => %d qd/%d p = 1 i. e. the percentage response of quantity equals the percentage change in price: elastic.

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