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6.Elasticity - ECONOMICS 200 PRINCIPLES OF MICROECONOMICS...

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© 2009 Lucia F. Dunn 11 ECONOMICS 200 PRINCIPLES OF MICROECONOMICS Slide Set 6: Elasticity Professor Lucia F. Dunn Department of Economics
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22 Elasticity of Demand Result: Q moves more High Elasticity (flat) Low Elasticity (steep) Result: P moves more D p Q 1 S 2 S P1 P2 Q1 Q2 D p Q 1 S 2 S P2 P1 Q1 Q2
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33 PRICE ELASTICITY OF DEMAND DEFINITION: Measures the responsiveness of quantity demanded to a change in price, other things remaining unchanged.
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44 Price Elasticity of Demand (Computed between 2 points on a demand curve) ice Pr in Change % Demanded Quantity in Change % = η Q P P Q P P Q Q × = = / / η OR, Price Elasticity !
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55 This is measuring elasticity between 2 points on a demand curve. For P and Q in this elasticity formula, we will use the average P and the average Q . So : AVE AVE P P Q Q = η
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66 Example: Time #1: P1 = $1.50; Q1 = 180 Time #2: P2 = $2.00; Q2 = 150 ANSWER: 0.6 (rounding)
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77 SIGN OF PRICE ELASTICITY Price elasticity is always negative – So we ignore the sign and always treat it as positive (i.e., take the absolute value). Price elasticity is the only elasticity measure where we ignore the sign. There are other elasticity measures where we will not ignore the sign.
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88 ELASTICITY Elasticity will vary if we measure it between different points on a demand curve.
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