PAM_2000_Spring_2009_Lecture_5

PAM_2000_Spring_2009_Lecture_5 - PAM 2000 Lecture 5 Agenda:...

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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 straight-line demand curve At top-most point, curve is infinitely or perfectly elastic. At bottom-most 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).

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PAM_2000_Spring_2009_Lecture_5 - PAM 2000 Lecture 5 Agenda:...

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