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Unformatted text preview: PAM 2000 Lecture 5 Agenda: Price Elasticity of demand Income elasticity of demand Cross price elasticity of demand Price elasticity of supply Consumer choice: Indifference curves Elasticity of Demand (cont) Some terms: If > 1, then demand is Elastic If < 1, then demand is Inelastic If = 1, the demand is Unit Elastic Extreme shapes of demand curve If = 0, then its perfectly inelastic demand. This is a vertical demand curve Examples? If = its perfectly elastic demand. This is a horizontal demand curve Examples? Vertical and Horizontal Demand Curves p , Price per unit (a) Perfectly Elastic Demand Q , Units per time period p * Vertical and Horizontal Demand Curves (b) Perfectly Inelastic Demand p , Price per unit Q * Q , Units per time period Extreme shapes of demand curve (cont) Most demand curves are somewhere in between Price elasticity changes as we move down a straightline demand curve At topmost point, curve is infinitely or perfectly elastic. At bottommost point, it is perfectly inelastic. So elasticity varies from infinity to zero in between Elasticity Along the Pork Demand Curve p , $ per kg a /2 = 143 a /5 = 57.2 D a = 286 220 Q , Million kg of pork per year 11.44 a / b = 14.30 3.30 a /(2 b ) = 7.15 Elastic: < 1 = 4 Unitary: = 1 = 0.3 Inelastic: 0 > > 1 Perfectly inelastic Perfectly elastic Things that influence elasticity of demand Examples: Number of substitute goods Length of time under consideration EX: Say OPEC oil increases result in doubling of price of gasoline Adjustment over day? Month? Year? Income Elasticity of Demand...
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This note was uploaded on 03/08/2009 for the course PAM 2000 taught by Professor Evans,t. during the Spring '07 term at Cornell University (Engineering School).
 Spring '07
 EVANS,T.

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