Textbook Notes (369,133)
United States (206,214)
Economics (223)
ECON 102 (59)
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Chapter 5

ECON 102 Chapter 5 Notes

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ECON 102

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ECON 102 Chapter 5 Notes Elasticity 1. Elasticity- the responsiveness of one variable to changes in another a. Knowing a products price elasticity allows economists to predict the amount by which quantity demanded will drop in response to a price increase or grow in response to a price decrease. 2. Elasticity of Demand a. Price Elasticity of Demand- is a measure of how responsive quantity demanded is to a change in price i. Defined as 1. Price elasticity of demand = percentage change in quantity demanded/ percentage change in price a. To find percent change when given a new and old numbers i. Percent change= Pnew-Pold/Pold ii. Price elasticity of demand as an absolute value 1. Price elasticity of demand is always a negative number a. Reflects that demand curve slope is negative b. As price increases quantity demanded falls iii. Measuring Elasticity with Percentages 1. Using a percentage change allows economists to compare the change in a house to a hamburger b. Elastic and Inelastic Demand i. Elastic Demand- when the absolute value of the computed price elasticity of demand is greater than one 1. The elastic demand curve is responsive to price changes a. Aperfect inelastic curve is horizontal 2. Products with close substitutes have highly elastic demand curves ii. Inelastic Demand- When quantity demanded does not change when price changes 1. The absolute value of the price elasticity for demand is less than 1 2. Perfectly inelastic demand curves are vertical iii. Gasoline might be inelastic but different brands of gas can be very
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