Elasticity feb11

Elasticity feb11 - Elasticity A way of measuring the...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Elasticity A way of measuring the sensitivity of demand and supply to changes in prices and/or income Price Elasticity of Demand the percentage by which demand changes when price changes by one percent How do we describe the elasticity of demand? Elastic – if the price elasticity of demand is greater than one then demand is said to be elastic Unit Elastic – if the price of elasticity of demand equals one then demand is said to be unit elastic Inelastic – if the price elasticity of demand is less than one then demand is said to be inelastic The Revenue Test One way to determine whether demand is elastic, unit elastic, or inelastic is to see what happens to revenue when the price of a good changes Revenue = P X Qd(P) When the price increases P obviously increases. Less obvious is the fact that Qd decreases. There is a war going on P(up) -> Qd (down) ->Revenue(up) Revenue Test If revenue decreases demand is elastic – the decrease in demand
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 03/31/2008 for the course ECON 101 taught by Professor Hansen during the Spring '07 term at Wisconsin.

Page1 / 5

Elasticity feb11 - Elasticity A way of measuring the...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online