week5-082 - ± Theater opera 0.18 Using Price Elasticity of...

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1 Elasticity ± Price elasticity of demand ± Relationship between price elasticity and total revenue ± Other types of elasticity ± Why elasticity is large or small PRICE ELASTICITY OF DEMAND Price elasticity of demand = E d E d = Percentage change in quantity demanded Percentage change in price E d = Q/Q P/P P = Q P Q Determinants of Price Elasticity of Demand ± Finding substitutes for the good ± Luxuries versus necessities ± Time lapse since the price change ± Proportion of income spent on the good
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2 Price Elasticities of Demand ± Green Peas 2.80 ± Restaurant Meals 1.63 ± Automobiles 1.35 ± Electricity 1.20 ± Beer 1.19 ± Movies 0.87 ± Foreign Air Travel 0.77 ± Shoes 0.70 ± Coffee 0.25
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Unformatted text preview: ± Theater, opera 0.18 Using Price Elasticity of Demand Elasticity and Total Revenue 3 Elasticity and Total Revenue E d > 1 E d < 1 E d = 1 P ↓ TR ↑ TR ↓ no change P ↑ TR ↓ TR ↑ no change Other Elasticities ± Demand elasticities ± Cross-price ± Income ± Price elasticity of supply Summary ± Price elasticity measures how much the quantity (demanded or supplied) responds to changes in price. ± This can be generalized to measure the response of one variable to a change in another. ± Understanding elasticities allows us to analyze supply and demand with greater precision....
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week5-082 - ± Theater opera 0.18 Using Price Elasticity of...

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