Karina’s ECO 105 Archived Resources

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Elasticity of Demand Summary
ELASTIC DEMAND: Demand is elastic if the absolute value of the own price elasticity is greater than 1.

The quantity consumed of a good is relatively responsive to a change in the price of the good. A rise in price will reduce consumption considerably. 

Elastic Demand

INELASTIC DEMAND: Demand is inelastic if the absolute value of the own price elasticity is less than 1.

The quantity consumed of a good is relatively unresponsive to a change in the price of the good when demand is elastic. Price increases will reduce consumption very little.

Inelastic Demand

UNITARY ELASTIC DEMAND: Demand is unitary elastic if the absolute value of the OPE is equal to 1.

Advertising often provides consumers with information about the existence or quality of a product, which in turn induces more consumers to buy the product.

 

KEY FORMULAS

ATC=TC/Q
AFC=FC/Q

AVC=VC/Q

MC=Change in TC/Change in Q

MR=Change in TR/Change in Q

TC=FC+VC

TR=P * Q

Breakdown of ATC (Average Total Cost Curve) and Maximization of Profit for a MONOPOLIST

monopolyprofits1

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