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UNC-Chapel Hill ECON 101 - Elasticity Continued

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ECON 101 1st Edition Lecture 5 Supply and Demand: Elasticity Continued Consumption curveo At each point of the consumption curve, the slope of the budget line= -(Pfood/Pothergoods)o Also get quantity informationMarket demand curveso Combine the demand curves of two or more individual households· Thorstein Vfboen· Ftaà v| = [-(delta Q)/Q)]/[(delta P)/P] = -(dela Q)/(de;ta P) x P/Q = % (delta Q) / % (delta P)Price elasticity of demand- =1 for a linear demand curveValues of Price Elasticity of demando n = 0 – totally inelastic – implies that as the price of the commodity changes, no more of the commodity is purchasedo 0 < n < 1 – inelastic – a 10% fall in the price of kumquats will result in a less than 10% increase in quantity sold. Total value of saleswill decline as price fallso n = 1 – unit elasticity – implies that a 10% fall in price is matched by a 10% increase in quantity purchasedo n > 1 – elastic with respect to its price – implies that a (for example) 10% fall in price is matched by a greater than 10% rise in quantity purchased. In this case, a fall in price will lead to an increasein the total value of sales of a commodity· Arc Price Elasticity of demando narc = [(QA – QB) / (QA + QB) / 2] / [(PA – PB) / (PA + PB / 2]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


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