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4/1
Review last week:
First we defined
ELASTICITY
elasticity
= % change in Q
% change in P
Now % change in Q = (/ Q/Q) x 100%
And
% change in P = (/ P/P) x 100%
So elasticity = /
Q/Q x 100%
=
/
Q/Q
=
/
Q
P
/ P/P x 100%
/ P/P
/ P
Q
Elasticity of demand
elasticity
=

% change in Q
=
L
Q
P
of demand
% change in P
L
P
Q
note minus sign is sometimes left off
note that slope of demand curve = / P// Q
inverse of slope of demand curve = / Q// P
So elasticity is “like” the inverse of the slope
To compute demand elasticity
= / (dQ/Q)/(dP/P) = / (dQ/dP)(P/Q)
= (positive inverse of slope) x (P/Q)
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So, what does it mean when we say that elasticity is larger in long
run :
we are saying that slope of demand is flatter
(larger means flatter)
eg.
P = 20  2Q
at
Q = 5
Elasticity of demand = (dQ/dP)(P/Q)
= 1
P = 15  Q
at
Q = 5
Elasticity of demand = 2
P = 30  4Q at Q = 5
Elasticity of demand = 0.5
Diagram:
All through same point
(Q = 5, P = 10)
4/3
Elasticity of supply
ES = elasticity =
% change in Q
of supply
% change in P
note no minus sign
To compute ES = (dQ/Q)/(dP/P) = (dQ/dP)(P/Q)
= (positive inverse of slope) x (P/Q)
eg.
supply curve
P = 2Q + 6
at point
Q = 2,
P = 10
To compute ES = (dQ/Q)/(dP/P) = (dQ/dP)(P/Q)
= (positive inverse of slope) x (P/Q) = 0.5 x 5 = 2.5
So now return to rent controls  when we say elasticity is bigger in
long run, we mean both curves are “flatter”, so excess demand is
larger
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This note was uploaded on 06/13/2011 for the course ECON A04 taught by Professor Mk during the Spring '07 term at University of Toronto Toronto.
 Spring '07
 MK

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