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Chapter 2

MGEB02H3 Chapter Notes - Chapter 2: Lifesaving, Arc Elasticity, Margarine

Economics for Management Studies
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The price elasticity is usually a negative number since increase in price = decrease in
In general, the price elasticity of demand for a good depends on the availability
of other goods that can be substituted for it. When there are close substitutes, a
price increase will cause the consumer to buy less of the good and more of the
substitute. Demand will then be highly price elastic. When there are no substitutes,
demand will tend to be price inelastic.
The price elasticity of demand depends
not only on the slope of the demand
curve but also on the price and quantity.
The elasticity, therefore, varies along
the curve as price and quantity change.
Slope is constant for this linear demand
Near the top, because price is high and
quantity is small, the elasticity is large in
magnitude. The elasticity becomes
smaller as we move down the curve.
1) Infinitely elastic demand
The principle that consumers will buy as much as they can (or as much quantity
possible) for a specific price (P*) and even a small increase will cause the quantity to
fall to zero and for any decrease quantity will increase without limit .
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