Ch. 4: Elasticity. Define, calculate, and explain the factors that influence the price elasticity of demand the cross elasticity of demand the income elasticity of demand the elasticity of supply. Price Elasticity of Demand.
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Define, calculate, and explain the factors that influence
%DQ = DQ/Qavg
%DP = DP/Pavg
e = .2/.05 =4
At prices above the mid-point of the demand curve, demand is elastic.
At prices below the mid-point of the demand curve, demand is inelastic.
= % D P - % D P(e)
= % D P(1-e)
P increase TR decreases
P decrease TR increases
P increase TR increases
P decrease TR decreases
P increase or decrease TR unchanged.
exy= %D quantity demanded for x
%D change in price of y
% D in income
A change in demand causes
Elasticity of supply