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Questions and Answers
What does the elasticity of demand measure?
What does the elasticity of demand measure?
Which goods typically have more elastic demand over time?
Which goods typically have more elastic demand over time?
How does the possibility of postponing consumption affect demand elasticity?
How does the possibility of postponing consumption affect demand elasticity?
What typically causes demand to be inelastic?
What typically causes demand to be inelastic?
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Which item is an example of a durable good?
Which item is an example of a durable good?
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When does demand typically become more elastic?
When does demand typically become more elastic?
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What happens to demand when prices are very high?
What happens to demand when prices are very high?
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Which method is usually used to measure price elasticity of demand?
Which method is usually used to measure price elasticity of demand?
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Study Notes
Elasticity of Demand Overview
- Elasticity of demand measures sensitivity of quantity demanded to price changes.
- Elastic demand occurs when an increase in price leads to a significant decrease in quantity demanded.
Factors Affecting Elasticity of Demand
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Possibility of Postponement:
- Goods with delayed consumption have more elastic demand.
- Immediate needs, like medicine, exhibit inelastic demand due to urgency.
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Durability of the Commodity:
- Durable goods (e.g., cars) show elastic demand in the long term as consumers have time to assess budget and options.
- Nondurable goods (e.g., bread) tend to have inelastic demand short-term since they are essential and cannot be postponed.
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Habits:
- Regular consumption leads to inelastic demand, especially with addictive products (e.g., cigarettes, alcohol) where consumers are less sensitive to price changes.
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Price Range:
- At extreme prices (very high or very low), demand elasticity tends to decrease.
- High prices likely reduce quantity demanded significantly due to affordability issues.
- Low prices may lead to increased quantity demanded as consumers find products affordable.
Measuring Price Elasticity of Demand
- Price elasticity is calculated by the ratio of percentage change in quantity demanded to percentage change in price.
- Different methods exist for measuring elasticity, emphasizing the relationship between demand sensitivity and pricing.
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Description
Explore the concept of elasticity of demand and how it reflects consumer behavior in response to price changes. Learn about the factors affecting elasticity and the implications for businesses and policymakers.
