Chapter_4_s

Chapter_4_s - Elasticity Elasticity PriceElasticityofDemand...

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Elasticity Elasticity
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Measure of  responsiveness of quantity  demanded to changes in  price. Percentage change in  quantity demanded from  1% change in price. Price Elasticity of Demand Price Elasticity of Demand P Q
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Calculate Price Elasticity ( Calculate Price Elasticity ( ε ε ) ) Symbol for elasticity is  ε For small percentage changes in price ε = Percentage change in quantity demanded Percentage change in price Price elasticity of demand is always negative; ignore the sign
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Elastic Demand Elastic Demand If price elasticity is greater than 1, demand  is  elastic. 3 3 Price Elasticity of Demand Inelastic Unit elastic Elastic 2 2 1 1 0 0
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Inelastic Demand Inelastic Demand If price elasticity is less than 1, demand is  inelastic. 3 3 Price Elasticity of Demand Inelastic Unit elastic Elastic 2 2 1 1 0 0
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Unit Elastic Demand Unit Elastic Demand If price elasticity is 1, demand is unit  elastic Price and quantity change by the same  percentage. 3 3 Price Elasticity of Demand Inelastic Unit elastic Elastic 2 2 1 1 0 0 3 3 Price Elasticity of Demand Inelastic Unit elastic Elastic 2 2 1 1 0 0
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Example:  Demand for Pizza Example:  Demand for Pizza Old New Change Price $1.00 $0.97 3% Quantity 400 404 1% Percentage change in quantity demanded Percentage change in price ε = 1% 3 % = 0.33 < 1 Demand is inelastic ε =
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Determinants of Price Elasticity  Determinants of Price Elasticity  of Demand of Demand
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This note was uploaded on 04/28/2011 for the course ECON 1 taught by Professor Tang during the Spring '08 term at UCSD.

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Chapter_4_s - Elasticity Elasticity PriceElasticityofDemand...

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