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p1” p1’ p1” The “horizontal sum” of the demand curves of individuals A and B. Elasticities ?Elasticity measures the “sensitivity” of one variable with respect to another. ?The elasticity of variable X with respect to variable Y is ? x y xy,%%.? ?? OwnPrice Elasticity of Demand ?Q: Why not just use the slope of a demand curve to measure the sensitivity of quantity demanded to a change in a modity’s own price? ?A: Because the value of sensitivity then depends upon the (arbitrary) units of measurement used for quantity demanded. Arc and Point Elasticities ?An “average” ownprice elasticity of demand for modity i over an interval of values for pi is an arcelasticity, usually puted by a midpoint formula. ?Elasticity puted for a single value of pi is a point elasticity. Arc OwnPrice Elasticity pi Xi* pi’ pi’+h pi’h What is the “average” ownprice elasticity of demand for prices in an interval centered on pi’? i39。X? X p iii iXp* ,*%%? ?? Arc OwnPrice Elasticity pi Xi* pi’ pi’+h pi’h What is the “average” ownprice elasticity of demand for prices in an interval centered on pi’? ? X p iii iXp* ,*%%? ??% 39。 )( 39。X Point OwnPrice Elasticity pi Xi* pi’ pi’+h pi’h What is the ownprice elasticity of demand in a very small interval of prices centered on pi’? i39。? X p iiiii ipXdX