191T1 - ECON191 (Spring 2010) 8, 11 & 12.2.2010 (Tutorial...

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1 ECON191 (Spring 2010) 8, 11 & 12.2.2010 (Tutorial 1) Elasticities of Demand and Supply Price elasticity of demand Percentage change in quantity demanded of a good resulting from a 1-percent change in price Point elasticity VS Arc elasticity Point Elasticity: E p P Q % % Q P P Q P P Q Q Arc Elasticity: E p Q P P Q P P Q Q P Q / / % % Linear demand curve bP a Q where a is the x -intercept and b is the inverse slope ( Q / P ) b Q b a P / / where a / b is the y -intercept and 1/ b is the slope Price elasticity of demand and linear demand curve E p = 0 Perfectly inelastic demand Vertical demand curve E p < 1 Inelastic demand Below midpoint of a linear demand curve E p = 1 Unitary elastic demand Midpoint of a linear demand curve E p > 1 Elastic demand Above the midpoint of a linear demand curve E p = Perfectly elastic demand Horizontal demand curve Price elasticity of demand and total revenue Other demand elasticities Income elasticity of demand: percentage change in the quantity demanded resulting from a 1-percent change in income Q I I Q I I Q Q I Q E I / / % % Income elasticity of demand > 0 for normal goods Income elasticity of demand < 0 for inferior goods Cross-price elasticity of demand: percentage change in the quantity demanded of one good resulting from a 1-percent increase in the price
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This note was uploaded on 08/26/2010 for the course ECON ECON191 taught by Professor Chan during the Spring '09 term at HKUST.

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191T1 - ECON191 (Spring 2010) 8, 11 & 12.2.2010 (Tutorial...

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