Elasticity of Demand 11

Elasticity of Demand 11 - ElasticityofDemand ManEc 387...

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Click to edit Master subtitle style Elasticity of Demand 11 Man Ec  387 Fall 2011 Mark H. Hansen, PhD Strategy Group Organizational Leadership & Strategy
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2 The rate at which quantity demanded falls as  price rises is defined by the price elasticity of  demand Demand elasticity defines sensitivity to price  in terms of percentage changes Price Elasticity of Demand
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3 Own Price Elasticity of Demand  | E | < 1 implies inelastic   demand     | E |  = 1 implies unitary elasticity      | E |  > 1 implies elastic demand Interpreting elasticity – a one percent increase  in price results in an  E % decrease in quantity  demanded Examples: water inelastic bottled water elastic clothing inelastic jeans elastic True Religion jeans inelastic
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4 Own-Price Elasticity of Demand and Total  Revenue Elastic –  an increase (a decrease) in price leads to  a decrease (an increase) in total revenue Inelastic –  increase (a decrease) in price leads to  an increase (a decrease) in total revenue Unitary –  total revenue is maximized at the point  where demand is unitary elastic
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5 Ties – Elasticity Example
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This note was uploaded on 10/04/2011 for the course BUS M 382 taught by Professor Cherylmcbetg during the Fall '11 term at BYU.

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Elasticity of Demand 11 - ElasticityofDemand ManEc 387...

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