101chapter3 - Chapter 3: Elasticity Price elasticity demand...

Info iconThis preview shows pages 1–19. Sign up to view the full content.

View Full Document Right Arrow Icon
13:00 Chapter 3: Elasticity Price elasticity demand supply Cross elasticity Income elasticity
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
13:00 13:00 2 Basic idea We know when P Qd Qs holding other factors constant
Background image of page 2
13:00 13:00 3 but how much? if price doubles how much does Qd fall? by 10% by 50% by 300%? price elasticity tells us
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
13:00 13:00 4 I. Price Elasticity of Demand example mocha latte at Starbucks price rises from $3 to $5 per cup Qd falls from 15 to 5 cups per hr.
Background image of page 4
13:00 13:00 5 equation % change in Qd % change in P
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
13:00 13:00 6 % change in Qd new Qd - initial Qd average Qd x 100 midpoint method
Background image of page 6
13:00 13:00 7 example 5 cups - 15 cups (5+15)/2 cups x 100 -10 cups 10 cups x 100 = -100%
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
13:00 13:00 8 % change in P new P - initial P average P x 100 midpoint method
Background image of page 8
13:00 13:00 9 example $5 - $3 ($5+$3)/2 x 100 $2 $4 x 100 = 50%
Background image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
13:00 13:00 10 demand elasticity % change in Qd % change in P -100% 50% = -2
Background image of page 10
13:00 13:00 11 If price of latte increases 1%, Qd of latte decreases 2%
Background image of page 11

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
13:00 13:00 12 demand elasticity a unit-free measure changes for different points on the demand curve
Background image of page 12
13:00 13:00 13 if price elasticity of demand (absolute value) = 1 unit elastic % change Qd = % change P > 1 elastic % change Qd > %change P sensitive to P changes
Background image of page 13

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
13:00 13:00 14 < 1 inelastic % change Qd < %change P not sensitive to P changes
Background image of page 14
13:00 13:00 15 elastic demand (>1) flatter curve P Q D small change in P big change in Qd
Background image of page 15

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
13:00 13:00 16 inelastic demand (<1) steep curve P Q D big change in P small change in Qd
Background image of page 16
13:00 13:00 17 perfectly inelastic demand vertical line P Q D change in P no change in Qd
Background image of page 17

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
13:00 13:00 18 perfectly elastic demand horizontal line P Q D any change in P Qd falls to zero
Background image of page 18
Image of page 19
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 07/19/2011 for the course ECON 101 taught by Professor Wood during the Spring '07 term at University of California, Berkeley.

Page1 / 60

101chapter3 - Chapter 3: Elasticity Price elasticity demand...

This preview shows document pages 1 - 19. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online