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#cfa #cfa-level-1 #economics #microeconomics #reading-13-demand-and-supply-analysis-introduction #study-session-4
Suppose, for example, that you are making a wage of €10 when your boss says, “I’ll increase your wage by 10 percent.” You are then earning €11. But later that day, if your boss then reduces your wage by 10 percent, you are then earning €9.90. So, by receiving first a 10 percent raise and then a 10 percent cut in wage, you are worse off. The reason for this is that we typically use the original value as the base, or denominator, for calculating percentages.
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4.1. Own-Price Elasticity of Demand
ge in price. However, because the choice of base for calculating percentage changes has an effect on the calculation, economists have chosen to use the average quantity and the averageprice as the base for calculating the percentage changes. (<span>Suppose, for example, that you are making a wage of €10 when your boss says, “I’ll increase your wage by 10 percent.” You are then earning €11. But later that day, if your boss then reduces your wage by 10 percent, you are then earning €9.90. So, by receiving first a 10 percent raise and then a 10 percent cut in wage, you are worse off. The reason for this is that we typically use the original value as the base, or denominator, for calculating percentages.) In our example, then, the arc elasticity of demand would be: E=ΔQQavgΔPPavg=−4009,00015.5=−0.244 There are two special cases in which linear demand curves hav


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