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07 Elasticity

# 07 Elasticity - Elasticity (ortheb...

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Econ 101 Alan C. Marco Elasticity . . . Measures responsiveness to price changes Is important for analyzing comparative statics Elasticity of  a’ with respect to ‘b’  (or the  ‘b’  elasticity of ‘ a’) is always measured as    b a % %

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Econ 101 Alan C. Marco THE ELASTICITY OF DEMAND Price elasticity of demand is the percentage  change in quantity demanded given a percent  change in the price. Or, P Q D - = % % ε
Econ 101 Alan C. Marco Example: toys

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Econ 101 Alan C. Marco Example: price increases from \$2.00 to \$2.20 and the  amount you buy falls from 10 to 8. Elasticity of demand  would be… .2/.1 = 2 What if price decreases from \$2.20 to \$2.00? .25/.09 = 2.75 Computing the Price Elasticity of Demand
Econ 101 Alan C. Marco The Midpoint Method: A Better Way The midpoint formula gives the same answer regardless  of the direction of the change.

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