07 Elasticity

07 Elasticity - Econ 101 Alan C. Marco Elasticity . . ....

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Unformatted text preview: 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 % % 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 - = % % Econ 101 Alan C. Marco Example: toys 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...
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This note was uploaded on 04/26/2010 for the course ECON 101 taught by Professor Staff during the Spring '08 term at Vassar.

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07 Elasticity - Econ 101 Alan C. Marco Elasticity . . ....

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