Slides FV L2

Slides FV L2 - EWMBA 201A Economic Analysis for Click...

Info iconThis preview shows pages 1–9. Sign up to view the full content.

View Full Document Right Arrow Icon
Click to edit Master subtitle style 9/16/09 EWMBA 201A Economic Analysis for Lecture 2: Elasticities and Decision Analysis August 17-18, 2009 Felix Várdy
Background image of page 1

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

View Full DocumentRight Arrow Icon
9/16/09 Overview Elasticity Pricing project Names Decision analysis
Background image of page 2
9/16/09 Elasticity Which demand curve would you rather face as a firm? P Q
Background image of page 3

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

View Full DocumentRight Arrow Icon
9/16/09 Elasticity Elasticity is a number that, roughly speaking, measures the change in quantity demanded (∆Q) for a given change in price (∆P). Clearly related to slope of demand function. The flatter the demand curve, the larger ∆Q for given ∆P, the more “ price-elastic” is the demand.
Background image of page 4
9/16/09 Elasticity Simple solution to make measure “unit invariant:” Express changes (in quantity and price) not in absolute, but in relative, i.e., %-terms! Elasticity: %-change in quantity demanded for a 1% -change in price. Note: when go from kg to g, %-change remains the same k more convenient formulation
Background image of page 5

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

View Full DocumentRight Arrow Icon
9/16/09 Elasticity Goods is called elastic if ε < -1; hence, in absolute value greater than 1. “More than proportional.” Goods is called inelastic if ε > -1; hence, in absolute value smaller than 1. “Less than proportional.” Linear demand does not have constant ε. (Which curve does?) Q Elasti c ( %∆Q large) Inelastic ( %∆Q sm all) P Q P Q P Perfectly Perfectly
Background image of page 6
9/16/09 Elasticity Symbolically, at (P,Q), price-elasticity of demand, ε, is: ε = %∆Q / %∆P = (∆Q/Q) / (∆P/P) = (∆Q/∆P) • (P/Q) = Slope • (P/Q) ( < 0) Price elasticity between two points (P1, Q1) & (P2, Q2) calculated as:
Background image of page 7

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

View Full DocumentRight Arrow Icon
9/16/09 Elasticity
Background image of page 8
Image of page 9
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 22

Slides FV L2 - EWMBA 201A Economic Analysis for Click...

This preview shows document pages 1 - 9. Sign up to view the full document.

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