Lecture Assignment #3
(Elasticity)
Source: LR 11 and LR10, Chapter 4, including the Appendix.
1.
Elasticity
1.1
What is the general definition of the
elasticity
of variable V with respect to
variable W?
1.2
What does an elasticity value of greater than 1 or less than 1 (in absolute value)
signify?
1.3
Apply the general statements above to the
price elasticity of demand.
2.
Arc Elasticity of Demand and Total Revenue
2.1
Use the
mid-point formula
to compute the
price elasticity of demand
between
point A and point B on a demand schedule, in each of the three following
cases.
(This is called the
arc elasticity
between two points).
Compute also
Total Revenue
, sometimes called
Total Expenditure
,
(price times quantity)
at A and at B in each case, and relate this to the value of the price elasticity.
A
B
p
q
p
q
(i)
10
10
5
20
(ii)
10
10
5
25
(iii)
10
10
5
15
The Mid-point formula is often written as follows:
E
D
= - [change in q / average q] / [change in p / average p]
= -
[
∆
q / avg. q] / [
p / avg. p]
Note:
1

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