lecture8Student(1).pdf - Lecture 8 Unit 6 Elasticity Outline 1 Elasticity defined 2 Price elasticity of supply Example 3 Price elasticity of demand

lecture8Student(1).pdf - Lecture 8 Unit 6 Elasticity...

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Lecture 8, Unit 6: Elasticity 4/3/2015
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Outline 1 Elasticity defined 2 Price elasticity of supply Example 3 Price elasticity of demand Example 4 Relationship between MR and price elasticity of demand 5 Other elasticities 6 Logarithmic scales and elasticities Example 7 Conclusion and summary
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Objectives Find and interpret the price elasticity of demand Find and interpret the price elasticity of supply Use logarithmic transformation/function to find elasticity Find and interpret other important elasticities Explain the relationship between TR, MR and the price elasticity of demand
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Literature Renshaw, ch. 9 & ch. 13
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Elasticity defined Shows how sensitive one variable is to changes in another variable. In general, e xy = y x , where y = Δ y y 0 × 100 , x = Δ x x 0 × 100 Using differentiation: e xy = dy dx × x y = dy / y dx / x
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The price elasticity of supply Shows how sensitive quantity supplied is to changes in price e s p = dq s dp × p q s Is positive; the larger, the more sensitive quantity supplied is to changes in price e s p > 1 = price elastic supply 0 < e s p < 1 = price inelastic supply e s p
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