Deck 3 - Click to edit Master subtitle style 5/11/11...

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Unformatted text preview: Click to edit Master subtitle style 5/11/11 Lecture 3. Elasticities: Shape of Supply and Demand Professor Mian Dai Spring, 2011 Econ 301 Microeconomics 5/11/11 A road map for todays lecture How Shapes of Demand and Supply Curves Matter? How do short-run and long-run elasticities differ? How do we understand and predict the effects of changing market conditions? 5/11/11 Why should we care about 5/11/11 Elasticities of Supply and Not only are we concerned with what direction price and quantity will move when the market changes, but we are concerned about how much they change. Elasticity gives a way to measure by how much a variable will change with the change in another variable. 5/11/11 Pr ice elasticity of demand Measures the sensitivity of quantity demanded to price changes. It measures the percentage change in the quantity demanded of a good that results from a one percent change in price. An example: suppose that the price of a good is $10, that the quantity demanded is 50 units, and , percentagechangein quantity / percentagechangein price / Q P Q Q P P = = , / 2.5/ 50 0.5 / 1/10 Q P Q Q P P - = = = - 5/11/11...
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Deck 3 - Click to edit Master subtitle style 5/11/11...

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