ECON 1 Lecture Notes 1011

ECON 1 Lecture Notes 1011 - ECON1LectureNotes...

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ECON 1 Lecture Notes 11/10/2010 15:00:00 Chapter 4 – Elasticity A Scenario You design websites for local businesses. You charge $200 per website, and  currently sell 20 websites per month. Your costs are rising (including the opp. cost of your time), so you’re thinking of  raising the price by 5%. The law of demand says that you won’t sell as many websites if you raise your  price. How many fewer websites? How much will your revenue fall, or might it increase? Price Elasticity of Demand - responsiveness* - price elasticity of demand: percentage change in quantity demanded from 1%  change in price - price elasticity of demand measures the sensitivity of buyers’ demand to price E = absolute value of (% change Qd / % change P) Why not E = absolute value of (change Qd / change P)? ^ depends on units you use
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ECON 1 Lecture Notes 1011 - ECON1LectureNotes...

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