Ch 5 Elasticity bb

# Ch 5 Elasticity bb - Chapter 5 Elasticity Copyright 2006...

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Copyright © 2006 Nelson, a division of Thomson Canada Ltd. Elasticity   is a measure of how much buyers and sellers  respond to changes in market conditions.   measures how responsive Qd or Qs is to changes  in price, income or prices of related goods. allows us to analyze supply and demand with  greater precision.
Copyright © 2006 Nelson, a division of Thomson Canada Ltd. Elasticity of Demand Price elasticity of demand  is a measure of how  much the quantity demanded of a good responds  to a change in the price of that good. Price elasticity of demand is the percentage  change in quantity demanded given a percent  change in the price.

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Copyright © 2006 Nelson, a division of Thomson Canada Ltd. The price elasticity of demand is computed as  the percentage change in the quantity  demanded divided by the percentage change  in price. We’ll denote price elasticity by Ep.              Ep = percentage change in Qd                              percentage change in P = % in Qd % in P
Copyright © 2006 Nelson, a division of Thomson Canada Ltd. The number we get from our calculations is  called the  coefficient of elasticity . The size of the coefficient, Ep, will tell us how  elastic the good is – how responsive demand is to  a change in price. Since elasticity will vary, we can define different  types of elasticity.

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Copyright © 2006 Nelson, a division of Thomson Canada Ltd. Types of Price Elasticity People respond to changes in price differently  depending on various factors. Are there a large number of substitutes? Is the good a luxury or a necessity? How narrowly defined is the market? What about the time period?
Copyright © 2006 Nelson, a division of Thomson Canada Ltd. Inelastic Demand Quantity demanded does not respond strongly to  price changes. The % change in Qd < % change in P Ep < 1 The demand curve would be fairly steep. Example: required textbooks. Your only options  to buying a new book is to find a used copy,  which may be difficult.

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Copyright © 2006 Nelson, a division of Thomson Canada Ltd. Inelastic Demand Q P D The change in P is proportionally bigger than the change in Q.
Nelson, a division of Thomson Canada Ltd. Elastic Demand Quantity demanded responds strongly to changes  in price. The % change in Qd > % change in P

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## This note was uploaded on 12/15/2010 for the course ECON 1b03 taught by Professor Holmes during the Winter '10 term at Macalester.

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Ch 5 Elasticity bb - Chapter 5 Elasticity Copyright 2006...

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