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Chapter 5

CHAPTER 5 SUMMARY.docx

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Department
Administration
Course
ADM1300
Professor
All Professors
Semester
Fall

Description
CHAPTER 5 SUMMARY ELASTICITYITS APPLICATIONElasticitya measure of the responsiveness of Qd or Qs to one of its determinants1Price Elasticity of Demand a measure of how much the Qd of a good responds to a change in the price of that good computed as thechange in price you will always obtain a vefor PEDDeterminants of Price Elasticity1 Availability of Substitutesthe more substitutes a good has the more elastic its demand2 Necessities vs Luxuries necessities are inelastic luxuries are elastic3 Definition of the Market narrow defined markets ice cream are more elastic than broadly define markets food4 Time Span goods have more elastic demand over longer time horizonsCalculate PEDOr use Midpoint Method PED1 elastic consumers are responsivePED1unit elasticityPED1 inelastic consumers are unresponsivewhen elasticity0 demand is inelastic and is a vertical linewhen elasticity is infinite demand is elastic and is a horizontal lineTOTAL REVENUEP 1 P increases and TR decreases viceversa demand is elastic
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