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Elasticity and Its Applications - Coggle Diagram
Elasticity and Its Applications
Elasticity
allows us to analyze supply and demand with greater precision.
measure of how much buyers and sellers respond to changes in market conditions
Price elasticity of demand
measure of how much the quantity demanded of a good responds to a change in the price of that good.
the percentage change in quantity demanded given a percent change in the price.
The Price Elasticity of Demand and Its Determinants
Availability of Close Substitutes
Necessities versus Luxuries
Definition of the Market
Time Horizon
Demand tends to be more elastic
the larger the number of close substitutes.
if the good is a luxury.
the more narrowly defined the market.
the longer the time period.
Computing the Price Elasticity of Demand
Price Elasticity of Demand= Percentage change in quantity demanded divide by Percentage change in price
The Variety of Demand Curves
Inelastic Demand
Elastic Demand
Perfectly Inelastic
Perfectly Elastic
Unit Elastic
Total Revenue and the Price Elasticity of Demand
Total revenue is the amount paid by buyers and received by sellers of a good.
Computing Income Elasticity
Income elasticity of demand=Percentage change in quantity demand divide by Percentage change in income
THE ELASTICITY OF SUPPLY
measure of how much the quantity supplied of a good responds to a change in the price of that good.
the percentage change in quantity supplied resulting from a percent change in price.
Determinants of Elasticity of Supply
Ability of sellers to change the amount of the good they produce.
Time period.
Computing the Price Elasticity of Supply
Price elasticity of supply= Percentage change in quantity supplied divide by Percentage change in price
THE APPLICATION OF SUPPLY, DEMAND, AND ELASTICITY
Examine whether the supply or demand curve shifts.
Determine the direction of the shift of the curve.
Use the supply-and-demand diagram to see how the market equilibrium changes.