191T1 - ECON191(Spring 2009 9-10.2.2009(Tutorial 1...

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1 ECON191 (Spring 2009) 9-10.2.2009 (Tutorial 1) Elasticities of Demand and Supply Price elasticity of demand ± Percentage change in quantity demanded of a good resulting from a 1-percent change in price ± Point elasticity VS Arc elasticity Ö Point Elasticity: E p = Δ Δ = P Q % % Q P P Q P P Q Q × Δ Δ = Δ Δ Ö Arc Elasticity: E p Q P P Q P P Q Q P Q × Δ Δ = Δ Δ = Δ Δ = / / % % Linear demand curve ± bP a Q = where a is the x -intercept and b is the inverse slope ( Δ Q / Δ P ) Ö b Q b a P / / = where a / b is the y -intercept and 1/ b is the slope ± Price elasticity of demand and linear demand curve E p = 0 Perfectly inelastic demand Vertical demand curve E p < 1 Inelastic demand Below midpoint of a linear demand curve E p = 1 Unitary elastic demand Midpoint of a linear demand curve E p > 1 Elastic demand Above the midpoint of a linear demand curve E p = Perfectly elastic demand Horizontal demand curve ± Price elasticity of demand and total revenue Other demand elasticities ± Income elasticity of demand: percentage change in the quantity demanded resulting from a 1-percent change in income
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191T1 - ECON191(Spring 2009 9-10.2.2009(Tutorial 1...

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