{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

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

This preview shows pages 1–7. Sign up to view the full content.

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?

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

View Full Document
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 = % %
Classifying Elasticity Numbers Elasticity Responsiveness Coefficient Value Elastic |% Q| > |% P| |E| > 1 Unitary Elastic |% Q| = |% P| |E| = 1 Inelastic |% Q| < |% P| |E| < 1

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

View Full Document
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?
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

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

View Full Document
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
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### Page1 / 25

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

This preview shows document pages 1 - 7. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online