ECON 1001_2010_Week 3_lecture_3

ECON 1001_2010_Week 3_lecture_3 - Food for Growth II: Set...

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1 Food for Growth II : Set definite goals and focus on them, for no objective leads to no end (Anonymous) A QUITTER NEVER WINS – AND A WINNER NEVER QUITS (Napoleon Hill)
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2 Lecture 3 Elasticity and Its Uses
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3 Lecture 3, Elasticity: Overview General Definition Lecture 3.1: Price elasticity of Demand Lecture 3.2: Policy and Price Elasticity of Demand Lecture 3.3: Factors affecting Price Elasticity of Demand Lecture 3.4: Price elasticity of Supply
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4 Elasticity: General Definition A quantitative measure of how sensitive one A quantitative measure of how sensitive one economic variable is to another economic economic variable is to another economic variable variable
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5 Lecture 3.1: Price Elasticity of Demand
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6 Comparing Different Price Elasticities of Demand . .. Highly elastic demand 0 10 20 30 10 20 30 40 50 60 70 Price of Coffee Quantity Demanded A 10% price increase . .. … lowers quantity demanded by 20% Quantity demanded is very sensitive to the price
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7 Comparing Different Price Elasticities of Demand 0 10 20 30 10 20 30 40 50 60 70 Price of Coffee Quantity Demanded Demand curve with Demand curve with low price elasticity low price elasticity A 10% price increase . .. … lowers the quantity demanded by 5% Quantity demanded is not very sensitive to the price
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8 S new Importance of Price Elasticity of Demand S old More elastic More elastic demand demand 0 10 20 30 10 20 30 40 50 60 70 Price of Coffee Quantity Demanded Small price rise Supply declines by 20 thousand kgm per day
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9 Importance of Price Elasticity of Demand Less elastic demand 0 10 20 30 10 20 30 40 50 60 70 Price of Coffee Quantity Demanded S new S old Large price rise Supply declines by 20 thousand kgm per day
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Slope Depends on Units of Measurement Elasticity is independent of the units of measurement.
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11 Price Elasticity of Demand The percentage change in the quantity demanded The percentage change in the quantity demanded of a good divided by the percentage change in the of a good divided by the percentage change in the price of that good price of that good η η = = percentage change in quantity demanded percentage change in quantity demanded percentage change in the price percentage change in the price Q Q d P P P / P P / P η η = = Q Q d P P Q Q d / Q / Q d = = = = P P Q Q d Q Q d P P
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12 Price elasticity of demand What is the elasticity of demand for sushi? Originally Price = $2/piece Quantity demanded = 400 pieces/day New Price = $1.94/piece Quantity demanded = 404 pieces/day, then Inelastic : 3 1 Price in Change % Quantity in Change % =
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13 Price elasticity of demand What is the elasticity of season ski passes? Originally
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ECON 1001_2010_Week 3_lecture_3 - Food for Growth II: Set...

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