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Unformatted text preview: 1 Chapter 5 Elasticity and its application Elasticity : How much buyers and sellers respond to changes in market conditions. Price Elasticity of Demand ¡ Price elasticity of demand measures how much Q d responds to a change in P . Note that P and Q move in opposite directions How do we calculate the percentage changes? We will use a method known as the midpoint method. (different to the standard method) The midpoint is the number halfway between the start & end values, also the average of those values. P Q P Q Econ 1 Fall 2008 Week 3 2 Exercise You design websites for local businesses. You charge $200 per website, and currently sell 12 websites per month. Because your costs are rising you’re thinking of raising the price to $250. • Suppose that if you raise your price to $250, your demand will fall to 8 Let’s compute the price elasticity of demand Example: Use the following information to calculate the price elasticity of demand for hotel rooms: If P = $70 Q d = 5000 If P = $90 Q d = 3000 P Q P Q 3...
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This note was uploaded on 01/04/2009 for the course ECON 1 taught by Professor Crane during the Fall '08 term at UC Irvine.
 Fall '08
 crane
 Price Elasticity

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