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U of M ECON 1101 - Elasticity

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Econ 1101 1st Edition Lecture 7Outline of Last Lecture I. Wrap Up of Supply and DemandII. MobLab Experiment DiscussionIII. Introduction to ElasticityOutline of Current Lecture II. Perfectly Inelastica. Supplyb. DemandIII. Perfectly Elastica. DemandIV. Inbetween CasesV. Short Run vs. Long Run ElasticityVI. Demand DeterminantsCurrent LectureWhen calculating elasticity, change everything into percentages to get rid of units. Perfectly Inelastic DemandThe quantity demanded does not change when price changes. Examples include Aplia and Insulin.Perfectly Inelastic SupplyQuantity Supplied doesn’t change when price changes. Examples include exclusive real estate like beach front property and higher education.Perfectly Elastic DemandWhen you change price by even the slightest amount. The demand changes drastically. No matter what, the consumers go crazy. This isn’t a realistic happening it is theoretical. Goods are either too CHEAP to purchase, or too EXPENSIVE to purchase. Lower price would mean infinite demand, and higher price would mean no demand. Example would be the “money store”Inbetween CasesThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.When 0 > demand elasticity > -1 = inelastic demandWhen -1 > demand elasticity = elastic demandWhen demand elasticity = -1 = unit elasticity(example of this Is when the price rises by 10%, the quantity demanded falls by 10%)Short Run vs. Long Run ElasticityWhen spending increases the demand stays pretty much the same.In the long run, people might move closer to their work, chose to drive cars, choose public transit, etc. therefore it doesn’t work to calculate it long termWhen estimating elasticity, we have to hold the determinants. We must convince ourselves that demand didn’t change but the supply DID. Demand Determinants-Tastes of Consumers-Number of Consumers-Income Change-Normal and Inferior goodss-Price of substitute/complimentsIn the long run we need to compare cases where prices have been different a long time. Realistically we cannot do

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