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### 21 Cards in this Set

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 Elasticity Measures responsiveness of one variable to changes in another variable. Price Elasticity of Demand Measures buyers responsiveness of their quantity demanded to a change in the price. Price Elasticity of Demand Formula Ed=%Change(Quantityd)/%Change(Price) Midpoint Formula Q2 -Q1/(Q2+Q1/2)/P2-P1(P2+P1/2) Elastic Buyers are relative responsive to changes of prices and Ed>1; Relatively flat Inelastic Buyers are relative UNresponsive to changes of prices and Ed<1; Relatively Steep Unit elastic Ed=1 Perfectly Elastic Ed=Infinity; Horizontal Perfectly Inelastic Ed=0; Vertical Elasticity along a linear demand Curve 1. AS you move down a line the coefficient will be getting smaller and smaller. 2. The top portion is elastic Ed>1, Inelastic Ed<1, Price Elasticity & Total Revenue Due to a change in price. Luxury or Necessity a. Luxury= Elastic b. Necessity= Inelastic Availability of Close Substitutes. a. Less Substitutes= Inelastic b. More Substitutes= Elastic Time a. Short time for adjustment= Inelastic b. Long time for adjustment= Elastic Portion of total Budget a. Small Portion= Inelastic b. Large Portion= Elastic Definition of Market a. Broad definition= Elastic b. Narrow Definition= Inelastic Income Elasticity Buyers responsiveness to a change in income; 1. Normal good has a Positive Elasticity 2. Inferior good has a Negative Elasticity Income Elasticity Formula %Change(Quantityd) /%Change(income) Cross Price Elasticity Buyers responsiveness to a change in a price of another good; 1. A Substitute has a positive Elasticity 2. A Complement has a negative Elasticity Cross Price Elasticity Formula %Change(Quantityd-x) /%Change(price-y) Chapter 5 Elasticity