ISU ECO 105 - Elasticity (3 pages)

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Price and Elasticity

Lecture number:
Lecture Note
Illinois State University
Eco 105 - Principles of Economics

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ECON 105 Lecture 6 Outline of Last Lecture I Movement vs Shift in a Curve A Demand Graphs B Supply Graphs C Factors II Factors that Shift the Demand Curve A Supply B Supply Curve III Factors Shifting the Supply IV Market Equilibrium A Graph B Characteristics Outline of Current Lecture I Elasticity II Price Elasticity of Demand a Equation for Price Elasticity of Demand III Questions IV Elasticity and Slope V Price Elasticity and Determinants VI Total Revenue Test Current Lecture Elasticity Price Elasticity of Demand ED Income Elasticity of Demand EI These 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 Cross Price Elasticity of Demand Exy Price of Elasticity of Supply Es Price Elasticity of Demand Responsiveness of quantity demanded of a good to changes in its price ED QD P ED while always negative sometimes taken in absolute value ED 1 unit elastic demand ED 1 elastic demand ED 1 inelastic demand Questions Which of the following is assumed to be constant when a supply curve is drawn Technology The coefficient of the price elasticity of demand is completed as the absolute value of the percentage change in quantity demanded divided by elasticity change in price Elasticity and Slope More horizontal a curve more elastic Vertical curve more inelastic Supply and Demand Curves Price Elasticity of Demand Determinants Availability of substitutes Relative Important of the good in a consumer budget Time to adjust to price changes Necessities ED 1 inelastic Luxuries ED 1 elastic Total Revenue Test Total Revenue sales P x Q Price increases Total revenue decreases ED 1 elastic demand Price increases Total revenue increase ED 1 inelastic demand If P changes BUT TR doesn t change ED 1 unit elastic demand

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