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Unformatted text preview: Shomu Banerjee ECON 201 NOTES ON PRICE ELASTICITY OF DEMAND The aim of this note is to go over some of the derivations regarding the price elasticity of demand we covered in class today. Most of it is in Varian The notion of price elasticity is, strictly speaking, measured at one point on a demand curve (hence referred to as point elasticity ). 1 Consider the case of a movement along a demand curve from a point ( Q o , P o ) to ( Q n , P n ). Then the percentage change in the quantity demanded is Q n- Q o Q o x 100 = Q Q o x 100, where Q is the change in quantity Q n- Q o ,. Similarly the percentage change in price is given by P P o x 100. Then the elasticity of demand, , can be written as = [ Q Q o x 100] [ P P o x 100] = Q P x P o Q o , where the term Q P is an approximation of the reciprocal of the slope of the demand curve. Since demand curves are downward sloping or at most vertical, Q P is either negative or at most zero. Therefore is either negative or at most zero....
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