Chapter 4 - Elasticity

# Chapter 4 - Elasticity - ELASTI CI TY 4 CHAPTER Predicting...

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ELASTICITY 4 CHAPTER

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Predicting Prices How responsive demand and supply are to price and other influences on buying plans and selling plans? Concept of elasticity. How to calculate, interpret, and use elasticity.
Price Elasticity of Demand Price elasticity of demand: responsiveness of quantity demanded of a good to a change in its price when all other factors remain the same. X product of price in change % X product of demanded quantity in change %

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Price Elasticity of Demand Let store price of bread increase: \$1.05 to \$1.25 per loaf. Quantity of bread consumed decreases: 100 to 95. % P change: (1.25-1.05)/1.05 = +0.1905 OR +19.05% % Q change: (95-100)/100 = -0.05 OR -5%. Elasticity = (-5%/19.05%) = -0.26 Absolute value: 0.26 A 1% increase in ‘P’ leads to 0.26% decrease in ‘Q’.
Let price of leather jackets increase: \$300 to \$350. Quantity purchased decrease: 90 to 65. % P change: (350-300)/300 = +0.167 OR +16.7% % Q change: (65-90)/90 = -0.278 OR –27.8%. Elasticity = (-27.8%/16.7%) = -1.66

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## This note was uploaded on 09/12/2011 for the course ECON 2100 taught by Professor Klimenko during the Fall '08 term at Georgia Tech.

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Chapter 4 - Elasticity - ELASTI CI TY 4 CHAPTER Predicting...

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