ECON20023 T1 2008 Lecture 3

ECON20023 T1 2008 Lecture 3 - ECON20023 ECONOMICS FOR...

Info iconThis preview shows pages 1–11. Sign up to view the full content.

View Full Document Right Arrow Icon
ECON20023 ECONOMICS FOR BUSINESS T1 2008 LECTURE 3 Galina Ivanova, CQU
Background image of page 1

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

View Full DocumentRight Arrow Icon
Based on slides from Layton et al ( 2 Chapter 5 Elasticity of supply and demand – is important for production and pricing decisions Combinations of four scenarious: Elastic demand Inelastic demand Elastic supply Inelastic supply
Background image of page 2
Based on slides from Layton et al ( 3 Key concepts What is elasticity? What is price elasticity of demand? What is income elasticity of demand? What is cross elasticity of demand? What is price elasticity of supply? Tax burden and elasticity
Background image of page 3

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

View Full DocumentRight Arrow Icon
Based on slides from Layton et al ( 4 The concept of elasticity Elasticity is the term used in economics to explain the sensitivity of one variable to changes in another variable. Elasticity is useful for business decision- making (e.g. pricing, marketing) and policy making.
Background image of page 4
Based on slides from Layton et al ( 5 Price elasticity of demand Price elasticity of demand measures the sensitivity of quantity demanded by consumers to changes in price. It is calculated as the ratio of the percentage change in quantity demanded of a product to a percentage change in the price of the that product. The formula for price elasticity of demand is: E d = percentage change in quantity demanded percentage change in price
Background image of page 5

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

View Full DocumentRight Arrow Icon
Based on slides from Layton et al ( 6 Numerical example A rock group raises ticket price from $25 to $30, and the number of seats sold falls from 20 000 to 10 000 as a result. 2.5 25% 50% 25 25 30 000   20 000   20 000   10 P % Q % d E = = - - = =
Background image of page 6
Based on slides from Layton et al ( 7 But what if … We compute elasticity between the same two points when the price is lowered rather than raised 9 . 5 17% 100% 30 30 - 25 000   10 000   10 000   20 P % Q % d E = = - = =
Background image of page 7

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

View Full DocumentRight Arrow Icon
Based on slides from Layton et al ( 8 The midpoint formula We can overcome this disparity using the midpoint formula. change in quantity sum of quantities/2 E d  = change in price sum of prices/2 / ( 29 ( 29 2 2 2 1 1 2 2 1 1 2 / P P P P / Q Q Q Q P % Q % d E + - + - = = Ed = 3.7
Background image of page 8
Based on slides from Layton et al ( 9 Elasticity coefficients Note that, at an introductory level, it is conventional to ignore the minus sign that should result from calculations. The elasticity coefficient could be: Elastic ( E d >1) Inelastic ( E d <1) Unitary elastic ( E d = 1)
Background image of page 9

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

View Full DocumentRight Arrow Icon
10 Elastic demand ( E d >1) Elastic demand indicates that the percentage change in quantity demanded is greater than the percentage change in price. This means consumers are sensitive to the
Background image of page 10
Image of page 11
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 09/06/2009 for the course MGMT econ taught by Professor Galinaivanova during the Spring '09 term at University of Central Arkansas.

Page1 / 44

ECON20023 T1 2008 Lecture 3 - ECON20023 ECONOMICS FOR...

This preview shows document pages 1 - 11. Sign up to view the full document.

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