EC101sOutlines07Elasticity

# EC101sOutlines07Elasticity - EC101 BB & EE / Manove Lecture...

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EC101 BB & EE / Manove Lecture 7. Elasticity Elasticity of Demand p 1 EC101 BB & EE / Manove So far we’ve seen that… When the price rises, the quantity demanded falls, and quantity supplied increases. BUT, by how much will the quantity demanded fall? AND by how much will the quantity AND by will the quantity supplied rise? And who cares about the answer to this (And who cares about the answer to this question ?) Elasticity of Demand>Who Cares? p 2

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EC101 BB & EE / Manove Firms care: Who cares? Governments care Governments care: Elasticity of Demand>Who Cares? p 3 EC101 BB & EE / Manove Who cares 2 Most important, Elasticity of Demand>Who Cares? p 4
EC101 BB & EE / Manove Who cares 2 To answer these questions, we have to understand the concept of elasticity ,… …which measures the responsiveness of one variable to another as a ratio of percentages . variable to another as a ratio of We begin with the price elasticity of demand . Elasticity of Demand>Who Cares p 5 EC101 BB & EE / Manove Price Elasticity of Demand A measure of how responsive the quantity demanded of a good is to a change in its price. More precisely, the price elasticity of demand is defined by: Percentage Change in Quantity Demanded Percentage Change in Price % Q or equivalently by % P  Elasticity of Demand>Definition p 6 [ " ", " ", " "] change Q quantity P price 

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EC101 BB & EE / Manove Arc Elasticities There are some things that are better NOT to know, like the arc (midpoint) elasticity formula .         21 /2 QQ PP    This is a stupid, confusing and useless formula strongly favored by textbook publishers strongly favored by textbook publishers. In fact most formulas are stupid and confusing and should be used only in cookbooks. I want you to understand concepts not I want you to understand concepts, not memorize formulas.
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## This note was uploaded on 12/11/2010 for the course ECON 101 taught by Professor Idson during the Fall '08 term at BU.

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EC101sOutlines07Elasticity - EC101 BB & EE / Manove Lecture...

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