L11 Econ 1011 Chapter 4: Elasticity
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P(cid:2915)(cid:2928)(cid:2913)(cid:2915)(cid:2924)(cid:2930)a(cid:2917)(cid:2915) (cid:2913)(cid:2918)a(cid:2924)(cid:2917)(cid:2915) (cid:2919)(cid:2924) (cid:2927)(cid:2931)a(cid:2924)(cid:2930)(cid:2919)(cid:2930)y (cid:2914)(cid:2915)(cid:2923)a(cid:2924)(cid:2914)(cid:2915)(cid:2914: ex: (cid:2870)% (cid:2869)% = -1. Elastic the demand for a good is elastic with respect to price if its price elastic of demand is greater than 1 (e > 1) Inelastic the demand for a good is inelastic with respect to price if its price elasticity of demand is less than 1 (e < 1) Unit elastic if the price elasticity is equal to 1 (e = 1) Determinants of price elasticity of demand: substitution possibilities can escape the effect of the price increase of a good by simply switching to the substitute product. Suggests that demand will tend to be more elastic with respect to price for products for which close substitutes are readily available. Ex: salt has no close substitutes, so demand for it is highly inelastic; while quantity of salt demanded is highly insensitive to price, but cannot be said for demand of a specific brand.