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### 12 Cards in this Set

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 What is price elasticity of demand? measure of responsiveness of the quantity demanded of a good to a change in its price Calculation for price elasticity of demand % change in quantity demanded/ % change in price Change in Q/Change in P Perfectly inelastic demand elasticity = 0, price does not affect demand Demand curve is vertical Inelastic demand elasticity >0 <1 Unit elastic demand Elasticity = 1 Elastic Demand elasticity >1, price change leads to a large change in demand Perfectly elastic demand elasticity = infinity Demand curve is horizontal What is a major factor that affects elasticity? Substitutes *the more substitutes, the larger it elasticity How does elasticity change along a demand curve? Not static *Elasticity decreases as price falls *Elasticity is unit elastic at the mid-point of the demand curve *Below the mid-point, demand is inelastic Effect on total revenue when the price falls and demand is inelastic Decrease in total revenue Effect on total revenue when the price falls and demand is unit elastic No change in total revenue Effect on total revenue when the price falls and demand is elastic Increase in total revenue