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Unformatted text preview: 1 Econ 1, Winter 2008 RATIKA NARAG, Ph.D. LECTURE 6 Elasticity Price Elasticity of Demand How sensitive is quantity demanded to a changes in the price of the good/service Price Elasticity of Supply How sensitive is quantity supplied to a changes in the price of the good/service LECTURE 6 Calculate Elasticity E p : the price elasticity coefficient P Q E p % % LECTURE 6 P 1 , P 2 : Prices Q 1 , Q 2 : Quantities 2 2 1 2 1 2 1 2 1 2 P P P P Q Q Q Q E p LECTURE 6 Note: Own price elasticity of demand is always negative The price elasticity of supply is always positive Economists usually refer to the own price elasticity of demand by its absolute value (ignore the negative sign) LECTURE 6 Inelastic Demand/Supply Elasticity is small (between 0 and 1 in absolute value) Inelastic supply means that the quantity supplied is not very sensitive to the price Inelastic demand means that the quantity demanded is not very sensitive to the price 2 LECTURE 6 Elastic Demand/Supply Elasticity is large (greater than 1 in absolute value) Elastic supply means that the quantity supplied is sensitive to the price Elastic demand means that the quantity demanded is sensitive to the price LECTURE 6 Size of Elasticity Unit Elastic: Own price elasticity = 1 Elastic: Own price elasticity > 1 Inelastic: Own price elasticity < 1 1 2 3 4 5 6 Inelastic Elastic Unit Elastic LECTURE 6 Extreme Cases LECTURE 6 E > 1, demand is elastic E < 1, demand is inelastic E = 1, demand is unit elastic E = 0, perfectly inelastic demand E = , perfectly elastic demand LECTURE 6 Income Elasticity: measures the responsiveness of demand to changes in income E I = % change in quantity demanded % change in income LECTURE 6 Q 1 , Q 2 : Quantities I 1 , I 2 : Incomes...
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This note was uploaded on 03/20/2008 for the course ECON 1 taught by Professor Nagata during the Fall '08 term at UCLA.
- Fall '08
- Price Elasticity