Econ 3 - 1 Price Elasticity of Demand 1 14.01 Principles of...

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Cite as: Chia-Hui Chen, course materials for 14.01 Principles of Microeconomics, Fall 2007. MIT OpenCourseWare (http://ocw.mit.edu), Massachusetts Institute of Technology. Downloaded on [DD Month YYYY]. 1 1 Price Elasticity of Demand 14.01 Principles of Microeconomics, Fall 2007 Chia-Hui Chen September 10, 2007 Lecture 3 Elasticities of Demand Elasticity. Elasticity measures how one variable responds to a change in an- other variable, namely the percentage change in one variable resulting a one percentage change in another variable. (The percentage change is independent of units.) Outline 1. Chap 2: Price Elasticity of Demand 2. Chap 2: Income Elasticity of Demand 3. Chap 2: Cross Price Elasticity of Demand 4. Chap 2: Comparison of Elasticity Over Short Run and Long Run 1 Price Elasticity of Demand Price elasticity of demand. Price elasticity of demand measures the per- centage change in quantity demanded resulting from one percentage change in price. Q Q P P Q Q P P Example Calculation Figure 1 shows a demand curve: Q ( P ) = 8 2 P. When the price changes from 2 to 1, the price elasticity of demand is: Δ Δ % Q P D E E = = . % P 2 D P 4 E | p =2 1 = 1 . = = 1 2
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Cite as: Chia-Hui Chen, course materials for 14.01 Principles of Microeconomics, Fall 2007. MIT OpenCourseWare (http://ocw.mit.edu),
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This note was uploaded on 04/26/2009 for the course ECON MICRO taught by Professor Chen during the Spring '09 term at MIT.

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Econ 3 - 1 Price Elasticity of Demand 1 14.01 Principles of...

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