ECON 20 Chapter Notes - Chapter 1: Cashew, Demand Curve

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Price elasticity of demand is a measure of the responsiveness of the quantity demanded of a good to changes in its price. It is the % change in quantity that results from a 1% change in price. Substitution possibilities: elasticity will be higher for products with close substitutes . Budget share: elasticity will be higher for items that take up a larger proportion of the budget. Time: elasticity will be higher over the long run, more time to adjust to price changes. Price elasticity of demand along the demand curve. The elasticity of demand declines steadily as we move down the demand curve. Perfect elastic demand (e= ) - slight increases in price lead to zero sales - horizontal. Perfect inelastic demand (e = 0) - non responsive to changes in price - vertical. Depends on price elasticity of demand, highest at the curve"s midpoint.

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