ECON 102 Chapter Notes - Chapter 6: Luxury Goods, Whopper, Insulin
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ECON 102 Full Course Notes
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Whenever a firm is thinking of changing its prices, it has a strong interest in elasticity. Elasticity: a measure of the responsiveness of quantity supplied or quantity demanded to one of its determinant. 1: the most commonly used elasticity concept is price elasticity of demand and supply. It"s 2, not -2 because quantity demanded is inversely related to price: the calculation for the price elasticity of demand comes out negative. Price elasticity of supply: the percentage change in quantity supplied divided by the percentage change in price: es = (% change in quantity supplied)/(% change in price) Classifying demand and supply as elastic or inelastic. Economists usually describe supply and demand by the terms elastic and inelastic. Elastic: if the percentage change in quantity is greater than the percentage change in price (e>1: quantity supplied changes by a larger percentage than the percentage change in price.