ECO04 - 29SEP - Lecture 04 ECO 100Y5Y 29 September 2008 A....

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Lecture 04 29 September 2008 ECO 100Y5Y A. Cohen 1 E C O N O M I C S PARKIN BADE Lecture 04 29 September 2008 E C O N O M I C S PARKIN BADE Chapter 4 Elasticity Price elasticity of demand ( η ) measures responsiveness of quantity demanded to change in price formula elasticity slope Price Elasticity of Demand continued = % ( / ) / Δ Δ Δ P η = quantity demanded price % ( ) Δ Q Q P ave ave
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Lecture 04 29 September 2008 ECO 100Y5Y A. Cohen 2 Figure 4.4 Elasticity Along Straight-Line Demand Curve 0 50 25 Q P 25 10 40 12.50 20 5 η > 1 η = 1 η < 1 20 Figure 4.4 (modified) Elasticity and Total Revenue 0 50 25 Q P 10 25 40 Q P η TR 0 25 0 9 10 20 200 2.33 20 15 300 1 30 10 300 1 / 2.33 40 5 200 1 / 9 50 0 0 12.5 5 η > 1 η = 1 η < 1 Elasticity and total revenue ( TR = P × Q ) test When demand is Price causes elastic ( η > 1) TR unit elastic ( η = 1) no change TR inelastic ( η < 1) TR continued
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Lecture 04 29 September 2008 ECO 100Y5Y A. Cohen 3 Figure 4.5
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ECO04 - 29SEP - Lecture 04 ECO 100Y5Y 29 September 2008 A....

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