Textbook Notes (368,070)
United States (205,937)
Economics (1,416)
ECON 1 (69)
Chapter 3

Chapter 3 - Elasticity.pdf

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Department
Economics
Course
ECON 1
Professor
Enrico Moretti
Semester
Fall

Description
Notes: Elasticity and ItsApplication I. Elasticity of Demand • elasticity: measures how much consumers respond to changes in a quantitative form A. The Price Elasticity of Demand and Its Determinant • law of demand: a fall in the price of a good raises the quantity demanded • price elasticity of demand: measures how much the quantity demanded responds to a change in price • elastic demand: demand is elastic if the quantity demanded responds substantially to changes in price • inelastic demand: demand is inelastic if the quantity demanded responds only slightly to changes in price 1. Availability of Close Substitutes • goods with close substitutes tend to have more elastic demand because it is easier for consumers to switch from that good to another • e.g. butter and margarine • a small increase in the price of butter (assuming margarine’s price is held fixed) causes quantity of butter sold to fall because consumers switch to buying margarine • e.g. eggs •
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