Lec06 - Price Elasticity of Demand price elasticity of...

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± unit-free measure ± negative number ± measures movement along demand curve ± mid-point formula, average of p and q Price Elasticity of Demand Price Elasticity of Demand ± price elasticity of demand e d ± measure of sensitivity of quantity demanded to price ± more elastic means more sensitive ± % % Q P 2 / ) P P ( ) P P ( 2 / ) Q Q ( ) Q Q ( P ) P P ( Q ) Q Q ( 2 1 1 2 2 1 1 2 1 2 1 2 + + = % % Q P = Price Elasticity of Demand Price Elasticity of Demand ± elastic |e d | > 1 ; |% Q| > |% P| ± inelastic |e d | < 1 ; |% Q| < |% P| ± unit elastic |e d | = 1 ; |% Q| = |% P| % P = -20 % % Q = 40 % -2 -20 40 = = = % % % % e d P Q 0 4 8 12 16 20 24 28 32 36 40 0 2 4 6 8 10 12 14 16 18 20 Price (per unit) Quantity D elastic 2 / ) P P ( ) P P ( 2 / ) Q Q ( ) Q Q ( P ) P P ( Q ) Q Q ( 2 1 1 2 2 1 1 2 1 2 1 2 + + = % % Q P = Price Elasticity of Demand Price Elasticity of Demand -.5 -20 10 = = = % % % % e d P Q 0 4 8 12 16 20 24 28 32 36 40 0 2 4 6 8 10 12 14 16 18 20 Price (per unit) Quantity D % P = -20 % % Q = 10 % ± elastic |e d | > 1 ; |% Q| > |% P| ± inelastic |e d | < 1 ; |% Q| < |% P| ± unit elastic |e d | = 1 ; |% Q| = |% P| inelastic 2 / ) P P ( ) P P ( 2 / ) Q Q ( ) Q Q ( P ) P P ( Q ) Q Q ( 2 1 1 2 2 1 1 2 1 2 1 2 + + = % % Q P =
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± elastic |e d | > 1 ; |% Q| > |% P| Price Elasticity of Demand Price Elasticity of Demand -1 -20 20 = = = % % % % e d P Q 0 4 8 12 16 20 24 28 32 36 40 0 2 4 6 8 10 12 14 16 18 20 Price (per unit) Quantity D % P = -20 % % Q = 20 % ± inelastic |e d | < 1 ; |% Q| < |% P| ± unit elastic |e d | = 1 ; |% Q| = |% P| unit elastic 2 / ) P P ( ) P P ( 2 / ) Q Q ( ) Q Q ( P ) P P ( Q ) Q Q ( 2 1 1 2 2 1 1 2 1 2 1 2 + + = % % Q P = S Quantity Price (per unit) D 1 D 2 Price Elasticity of Demand
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This note was uploaded on 10/10/2009 for the course ECON 101 taught by Professor Gerson during the Winter '08 term at University of Michigan.

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Lec06 - Price Elasticity of Demand price elasticity of...

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