Lecture_4

# Lecture_4 - Lecture 4 ELASTICITY 1 ELASTICITY A measure of...

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Lecture 4 ELASTICITY

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1. ELASTICITY A measure of the responsiveness of quantity demanded or quantity supplied to one of its determinants.
1. Price Elasticity of Demand (PED)

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1. Price Elasticity of Demand (PED)
1. Price Elasticity of Demand (PED) The demand elasticity formula yields a negative value because price and quantity move in opposite directions. It is the magnitude or the absolute value of the PED that reveals how responsive the quantity change has been to a price change. Elasticity is not a slope.

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1. Price Elasticity of Demand (PED) Inelastic demand PED < 1, means percentage change in the quantity demanded is smaller than the percentage change in price E.g. necessities PED = 0 perfectly inelastic demand when the quantity demanded remains constant when price changes. E.g. insulin
1. Price Elasticity of Demand (PED) Inelastic demand 0 1 2 3 4 5 6 7 8 0 5 10 15 Price quantity Perfecly inelastic demand 0 1 2 3 4 5 6 7 8 0 20 40 60 quantity Inelastic demand

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1. Price Elasticity of Demand (PED) Unit elastic demand PED = 1, means that the percentage change in the quantity demanded equals the percentage change in price. 0 1 2 3 4 5 6 7 8 0 20 40 60 80 Price quantity Unit elastic demand
1. Price Elasticity of Demand (PED) Elastic demand PED > 1, means that percentage change in the quantity demanded is greater than the percentage change in price. E.g. luxury goods ▫ PED = ∞ perfectly elastic demand when the quantity demanded changes by an infinitely large percentage in response to a tiny price change.

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1. Price Elasticity of Demand (PED) Elastic demand 0 1 2 3 4 5 6 7 8 0 50 100 150 Price quantity Elastic demand 0 0.5 1 1.5 2 2.5 3 3.5 0 20 40 60 quantity Pefectly Elastic demand
1. Price Elasticity of Demand (PED) Elasticity along a straight-line demand curve PED changes when moving along a linear demand

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Lecture_4 - Lecture 4 ELASTICITY 1 ELASTICITY A measure of...

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