9/5/2011
1
Chapter 4:
Elasticity
Lecture 1:
Price elasticity of demand
definition and determinants
Chapter 4:
Elasticity
Lecture 1:
Price elasticity of demand definition and determinants
Elasticity
Chapter 4:
Elasticity
Elasticity = “Responsiveness”
P
P
Q
Q
D
D
Less response =
less “elastic”
More response =
more“elastic”
Chapter 4:
Elasticity
Lecture 1:
Price elasticity of demand definition and determinants
Price Elasticity of Demand
•
Price Elasticity of Demand =
Responsiveness of consumers to a
change in price
Chapter 4:
Elasticity
Lecture 1:
Price elasticity of demand definition and determinants
Price Elasticity of Demand
•
Slope = rise/run
•
Need a unit-free measure
•
Price Elasticity of Demand
=
ε
d
=
%
%
d
Q
P
Chapter 4:
Elasticity
Lecture 1:
Price elasticity of demand definition and determinants
Price Elasticity of Demand
•
3 Ranges
• ε
d
> 1 →
> 1 →
>
→ “elastic” demand
• ε
d
< 1 →
< 1 →
<
→ “inelastic” demand
• ε
d
= 1 →
= 1 →
=
→ “unit elastic” demand

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