This preview shows pages 1–6. Sign up to view the full content.
ELASTICITY
4
CHAPTER
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document Predicting Prices
How responsive demand and supply are to price and
other influences on buying plans and selling plans?
Concept of elasticity.
How to calculate, interpret, and use elasticity.
Price Elasticity of Demand
Price elasticity of demand:
responsiveness of
quantity demanded of a good to a change in its
price when all other factors remain the same.
X
product
of
price
in
change
%
X
product
of
demanded
quantity
in
change
%
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document Price Elasticity of Demand
Let store price of bread increase: $1.05 to $1.25 per
loaf.
Quantity of bread consumed decreases: 100 to 95.
% P change: (1.251.05)/1.05 = +0.1905
OR +19.05%
% Q change: (95100)/100 = 0.05 OR 5%.
Elasticity = (5%/19.05%) = 0.26
Absolute value: 0.26
A 1% increase in ‘P’ leads to 0.26% decrease in ‘Q’.
Elasticity
Let price of leather jackets increase: $300 to $350.
Quantity purchased decrease: 90 to 65.
% P change: (350300)/300
= +0.167
OR +16.7%
% Q change: (6590)/90 = 0.278
OR –27.8%.
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
This is the end of the preview. Sign up
to
access the rest of the document.
This note was uploaded on 10/10/2010 for the course ECON 2100 B taught by Professor Dr.vivekghosal during the Fall '09 term at Georgia Institute of Technology.
 Fall '09
 DR.VIVEKGHOSAL
 Price Elasticity

Click to edit the document details