1
Elasticity
• So far, we have studied how S and D
shifts affect P* and Q*
– We know that a supply increase will cause
Q* to
increase and P* to decrease.
– But how much do P* and Q* change?
• Depends on ?
– shape of, location on the demand curve
– responsiveness of quantity demanded to a
change in price
same S, different D
supply shift of identical size
P
Q
S
D
P
Q
S
D
Why isn’t slope enough?
slope is sensitive to units
P
Q
(inches)
D
P
Q
(feet)
D
$3
5
$2
10
60
120
Elasticity
• Elasticity: a measure of responsiveness
– Price elasticity of demand
– Income elasticity of demand
– Crossprice elasticity of demand
– Price elasticity of supply
Price Elasticity of Demand
•
a unitsfree measure of the responsiveness of
quantity demanded to a change in price.
•
specifically: percentage change in quantity
demanded that results from a one percent change in
its price
P
P
Q
Q
D
/
?
/
?
=
price
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
This is the end of the preview.
Sign up
to
access the rest of the document.
 Spring '08
 TANG
 Supply And Demand, 1%, $2, $3, air travel, Qavg

Click to edit the document details