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ECON 101 (211)
Eva Lau (7)
Chapter 3

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ECON 101
Eva Lau

Chapter 3 - Price elasticity of demand is unit-free measure of responsiveness of quantity demanded of good to change in its price when everything else remains the same - Use value in middle of change as denominator when calculating percentage to have more constant numbers - magnitude of price elasticity of demand tells us the responsiveness of quantity demanded; take absolute value E.g. insuli n - demand becomes less elastic as price falls along linear demand curve - total revenue test is method to estimate price elasticity of demand based on change in total revenue due to price change o if price cut increases revenue, demand elastic o if price cut decreases revenue, demand inelastic o if price cut doesn’t change revenue, unit elastic - factors that influence elasticity of demand are: closeness of substitutes, proportion of income spent on good, and time elapsed since price change o closeness of substitutes  closer the substitutes are, more elastic the demand  gasoline has no close substitutes, inelastic demand  Dell, HP, etc all close substitutes, elastic demand o proportion of income spent on good  greater the proportion, larger the elasticity of demand o time since price c
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