Micro2_Chapter4_1

Micro2_Chapter4_1 - School of Business International...

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References: Keat/Young, Managerial Economics, 5/e, Pearson Education Lecturer: Dr. Nguyen Quynh Mai 1 School of Business International University Mar 2009
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References: Keat/Young, Managerial Economics, 5/e, Pearson Education Lecturer: Dr. Nguyen Quynh Mai 2 Introduction ± Time: ± Readings: ± Content: – The Economic Concept of Elasticity – The Price Elasticity of Demand – The Cross-Elasticity of Demand – Income Elasticity – Other Elasticity Measures – Elasticity of Supply
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References: Keat/Young, Managerial Economics, 5/e, Pearson Education Lecturer: Dr. Nguyen Quynh Mai 3 Learning Objectives ± Define and measure elasticity ± Apply concepts of price elasticity, cross-elasticity, and income elasticity ± Understand determinants of elasticity ± Show how elasticity affects revenue
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References: Keat/Young, Managerial Economics, 5/e, Pearson Education Lecturer: Dr. Nguyen Quynh Mai 4 The Economic Concept of Elasticity ± Elasticity : the percentage change in one variable relative to a percentage change in another. B in change percent A in change percent Elasticity of t Coefficien =
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References: Keat/Young, Managerial Economics, 5/e, Pearson Education Lecturer: Dr. Nguyen Quynh Mai 5 The Price Elasticity of Demand ± Price elasticity of demand : The percentage change in quantity demanded caused by a 1 percent change in price. Price % Quantity % E = p
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References: Keat/Young, Managerial Economics, 5/e, Pearson Education Lecturer: Dr. Nguyen Quynh Mai 6 Elastic vs. Inelastic ± An elastic response is one where numerator is greater than denominator. i.e., % Q>% P so Ε>1 ± An inelastic response is one where numerator is smaller than denominator. i.e., % Q<% P so Ε<1
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References: Keat/Young, Managerial Economics, 5/e, Pearson Education Lecturer: Dr. Nguyen Quynh Mai 7 Look at the Extremes ± Perfectly Elastic D Elasticity = infinitive ( ) ± Perfectly Inelastic D Elasticity = 0 P Q P Q D D
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References: Keat/Young, Managerial Economics, 5/e, Pearson Education Lecturer: Dr. Nguyen Quynh Mai 8 Relatively Elastic vs. Inelastic Demand Curves Q 1 Q 2 Q 2 P 1 P 2 D’ D D’ is relatively more elastic than D P Q
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References: Keat/Young, Managerial Economics, 5/e, Pearson Education Lecturer: Dr. Nguyen Quynh Mai 9 The Price Elasticity of Demand ± Arc elasticity : Elasticity which is measured over a discrete interval of a demand (or a supply) curve. Briefly, arc elasticity is simply an average elasticity along a range of the demand curve. ± E
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Micro2_Chapter4_1 - School of Business International...

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