61153 - Elasticity and Demand Elasticity concept is very...

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Elasticity and Demand Elasticity concept is very important to business decisions. It measures the responsiveness of quantity demanded to changes in price It is also important for public policy-makers when dealing with tax issues on commodities – if we increase cigarette taxes, what will happen to the consumption of cigarettes?
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The Coefficient of Demand Elasticity The coefficient of demand elasticity is defined as the ratio of the percentage change in quantity demanded to the percentage change in price. P Q E = % %
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Classifying Elasticity Numbers Elasticity Responsiveness Coefficient Value Elastic |% Q| > |% P| |E| > 1 Unitary Elastic |% Q| = |% P| |E| = 1 Inelastic |% Q| < |% P| |E| < 1
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Using Elasticity Information Suppose we know that the price elasticity of demand for automobiles is –4.0 and manufactures plan on increasing auto prices by 10% this year. What doe we predict will happen to the number of automobiles that will be sold?
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P Q E = % % Answer: -4.0 = X/0.10 or X = (-4.0)0.10 or X = -0.40 Thus, we predict a 40 percent reduction in quantity demanded
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Elasticity and Total Revenue Total Revenue(TR) is merely the firms sales measured in dollar terms. It can be obtained by taking the price(P) of
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This note was uploaded on 09/18/2011 for the course ECO 6115 taught by Professor Staff during the Spring '08 term at University of Central Florida.

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61153 - Elasticity and Demand Elasticity concept is very...

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