Economics 1
Principles of Microeconomics
4. Elasticity (A)
Fall 2010
Herb Newhouse
1
Readings
•
Ch 4: Elasticity (p 97 – 99)
Ch 4: Elasticity (p 97
99)
–
Price Elasticity of Demand
2
Outline
•
Elasticity
Elasticity.
•
Trouble with Slope.
l
•
Formula.
•
Example.
3
Elasticity
•
Consider two similar markets
Consider two similar markets.
–
Both have identical supply.
The two demands have different
–
“responsiveness”.
–
Both supply curves shift identically
Both supply curves shift identically.
–
How do the equilibrium prices and quantities
change?
4
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Elasticity
P
P
S
S
S’
S’
D
Q
Q
D
5
The Trouble with Slope
•
The first guess for the explanation is that the
difference is caused by different slopes of the
demand curves
demand curves.
–
Right idea but slope is not the appropriate
measure.
–
Easy way to see this is by changing the units.
–
We’ll solve the problem by looking at percentage
We ll solve the problem by looking at percentage
changes.
6
The Trouble with Slope
P
P
$3
$2
D
D
Q
(ozs)
Q
(lbs)
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