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Chapter 2

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University of Manitoba

Economics

ECON 1010

Laura K.Brown

Spring

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Oc78 ECON101 0 Elasticity will decrease along the demand curve moving from left to right, as the price decrease and the quantity increases. In the midpoint for the demand curve, the elasticity is exactly equal to one. Price elasticity and the steepness of the demand curve When price and quantity are the same, price elasticity of demand is always smaller for the steeper of two demand curves because the reciprocal of the slope of the steeper demand curve is less If two demand curves have a point in common, the steeper curve must be less elastic with respect to price at that point However, this does not mean that the steeper curve is less elastic at every point. Perfectly Elastic and Inelastic demand Perfectly elastic: Demand is perfectly elastic with respect to price if price elasticity of demand is infinite. This occurs when the demand curve is horizontal. Perfectly inelastic: Demand is perfectly inelastic with respect to price if price elasticity of demand is zero. This occurs when the demand curve is vertical. DETERMINANTS OF PRICE ELASTICITY OF DEMAND Availability of substitutes o The larger the number of substitutes, the more elastic demand tends to be.

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