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Fitch%20-%20Class3%20F10-%20Elasticities

# Fitch%20-%20Class3%20F10-%20Elasticities - Chapter 2 Supply...

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Fall 2010 UGBA101A-03 Microeconomic Analysis for Business Decisions Chapter 2 Supply and Demand Slide 1 Class 3 Prof. Todd Fitch

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Chapter 2: Demand and Supply Agenda uni25CF Can we predict how prices and quantities change after some change in exogenous variables? uni25CF We would like a measure that is not influenced by scale changes (same measure in pennies and dollars) Chapter 2 Supply and Demand Slide 2 uni25CF Understand and discuss short and long run differences uni25CF Government intervention uni25CF Apply to market for gasoline
ELASTICITIES OF DEMAND 2.4 uni25CF elasticity Percentage change in one variable resulting from a 1-percent increase in another. uni25CF price elasticity of demand Percentage change in quantity demanded of a good resulting from a 1-percent increase in its price. Price Elasticity of Demand Chapter 2 Supply and Demand Slide 3

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ELASTICITIES OF SUPPLY AND DEMAND 2.4 uni25CF linear demand curve Demand curve that is a straight line. Linear Demand Curve Linear Demand Curve Figure 2.11 The price elasticity of demand depends not only on the slope of the demand curve but also Chapter 2 Supply and Demand Slide 4 on the price and quantity. The elasticity, therefore, varies along the curve as price and quantity change. Slope is constant for this linear demand curve. Near the top, because price is high and quantity is small, the elasticity is large in magnitude. The elasticity becomes smaller as we move down the curve.
ELASTICITIES OF DEMAND 2.4 Price Elasticity of Demand FYI Only… uni25CF Price elasticity of demand < 0: Typical good.

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Fitch%20-%20Class3%20F10-%20Elasticities - Chapter 2 Supply...

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