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Unformatted text preview: 01/23/2008 Class Notes (cover part of Chapter 4 in the textbook) Class Outline • Price Elasticity of Demand • Total Revenue & Price Elasticity of Demand Price Elasticity of Demand Consider the demand for croissants and that for CDs: Suppose that the price decrease of the same amount for both goods, say $1. The quantity demanded of croissants increases by 10 units and the quantity demanded of CDs by 40 CDs. Does this imply that consumers are more responsive to a change in price of croissants? No it does not! The units of measurement are different in the two cases! You need to know the initial prices and quantities in the two cases in order to figure out which demand is more sensitive to change in price. D D Croissants CDs p p p 1 p p 1 1 q p q q 1 q q 1 q ⇒ The inverse of the slope of the inverse demand ( d q p ∆ ∆ ) alone does not help! Def. Price-Elasticity of Demand ( ε d ) The Price-Elasticity of Demand is a measure of the responsiveness of quantity demanded by consumers to a change in price, ceteris paribus.by consumers to a change in price, ceteris paribus....
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This note was uploaded on 04/29/2008 for the course ECON 251 taught by Professor Blanchard during the Spring '08 term at Purdue.
- Spring '08
- Price Elasticity