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elasticity
- measure of the responsiveness of quantity demanded or supplied to a change in price
- defined for a point on the demand curve
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arc elasticity
average own price elasticity averaged between two given points
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own-price elasticity of demand
- if there's a change of price of good A, what's the change in quantity demanded for good A?
- sign will be NEGATIVE
- if prices (numerator) goes up, demand (denominator) goes down
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cross-price elasticity
- positive value, goods are subsitutes (price of good A goes up, demand of good B goes up)
- negative value, goods are complements (price of good A goes up, demand of good B goes down)
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income elasticity of demand
- if your income changes, how does the quantity you demand of a certain good change?
- positive value: luxury goods
- 0-1: normal goods
- negative value: inferior goods
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|ε| > 1
- elastic demand
- price and total revenue vary inversely
- price goes up decreases TR
- price goes down increase TR
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|ε| = 1
- unit-elastic demand
- change in price has no impact on TR
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0 < |ε| < 1
- inelastic demand
- price and total revenue vary directly
- price goes up increases TR
- price goes down decreases TR
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characteristics of own-price elastic goods?
- many substitutes
- non-necessities
- storable
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characteristics of own-price inelastic goods?
- unique
- necessities (few or no substitutes)
- perishable
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own price flexibility of demand
- inverse/reciprocal of the own price elasticity of demand
- measures percentage change in price assoc. with percentage change in quantity, ceteris paribus
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