Chp4 - Elasticity

Chp4 - Elasticity - 1Chapter4 Elasticity

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1 Chapter 4 Elasticity A responsiveness of quantity demanded to a change in price When the price falls, the quantity demanded goes up, but how  much? A lot : demand is elastic A little : Demand is inelastic 4-1
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Price Elasticity of Demand =  Percent change in quantity demanded     Percent change in price Δ  = a change in % Δ  = pecent change in  % Δ  Q = deltaQ / Q ο Percent change in quantity demanded = change in Q / initial  Q 4-2
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Which value do we compare the change to? o Initial value o Final value o Average value o By convention, use the average value where:  o Q AVE  = (Q 0  + Q ) / 2 4-3
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Elasticity   =     %  Q / %  P  =  η Q1 – Q0 Q0 + Q1 2             P1- P0         P0 + P1 2 Calculate n Along this demand curve  When P increases from 3.7 to 3.90 And  From 1500 To 500 (500-1500/1500 + 500 /2)    (3.90-3.70/3.70+3.90/2) 4-4
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Example: Calculate elasticity:   4-5 Q P P 0  = 50 Q 0   25  D Q 1   45 P 1  = 20
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Chp4 - Elasticity - 1Chapter4 Elasticity

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