# 20 download_doc.php - C hapter 3 I The elasticity concept a...

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Chapter 3 I. The elasticity concept a. An elasticity tells us what percentage a variable (G) changes when (S) changes by x% i. , = % % = % % = EG S Change in G Change in S ∆G ∆ S / / = - ∆G G∆ S S G2 G1 G1 * - S1 S2 S1 b. Measurers how responsive a variable G is to variable S i. E > 0 means S and G are directly related ii. E < 0 means S and G are directly related II. Own Price Elasticity of Demand a. , = % % = % % EQX PX Change in QXd Change in PX ∆QXd = / / = PX ∆QXd QXd∆ PX PX ∆QXd ∆ PX * PX QXd b. The own-price elasticity is negative according to the law of demand → it will never be positive i. Often use the absolute value of own price elasticity of demand ii. Elastic 1. , > |EQX PX| 1 iii. Inelastic 1. , > |EQX PX| 1 iv. Unitary 1. , = |EQX PX| 1 III.Own price elasticity and total revenue a. Elasticities tell us how changes in price relate to total revue ( = ) TR pq i. When demand is elastic 1. ↓ P → ↑sales → ↑ TR

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ii. When demand is inelastic 1. ↓ P → minimal ↑sales →
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