ch_6 - Introduction to Economics Textbook: Hubbard & OBrien...

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Introduction to Economics Textbook: Hubbard & O’Brien - Economics Today’s Lecture Coverage: Chapter 4 - Economic Efficiency, Government Price Setting, and Taxes Chapter 4 - Appendix: Quantitative Supply and Demand Analysis Chapter 6 - Elasticity: The Responsiveness of Demand and Supply by Erdem Aktug Lehigh University, Rauch Business Center, Room 211 Phone: 610-758-5348 Email: [email protected]
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Do People Care about the Prices of Books? 6.1 Define the price elasticity of demand and understand how to measure it. 6.2 Understand the determinants of the price elasticity of demand . 6.3 Understand the relationship between the price elasticity of demand and total revenue . 6..4 Define the cross-price elasticity of demand and the income elasticity of demand, and understand their determinants and how they are measured. 6.5 Use price elasticity and income elasticity to analyze economic issues. 6.6 Define the price elasticity of supply and understand its main determinants and how it is measured. Learning Objectives In 2006, U.S. consumers spent almost $54 billion to buy 3.2 billion copies of new printed books.
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Elasticity: The Responsiveness of Demand and Supply Elasticity A measure of how much one economic variable responds to changes in another economic variable.
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Price elasticity of demand The responsiveness of the quantity demanded to a change in price, measured by dividing the percentage change in the quantity demanded of a product by the percentage change in the product’s price. 4.1 The Price Elasticity of Demand and Its Measurement Learning Objective 6.1 Measuring the Price Elasticity of Demand
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Elastic demand Demand is elastic when the percentage change in quantity demanded is greater than the percentage change in price, so the price elasticity is greater than 1 in absolute value. The Price Elasticity of Demand and Its Measurement Learning Objective 6.1 Inelastic demand Demand is inelastic when the percentage change in quantity demanded is less than the percentage change in price, so the price elasticity is less than 1 in absolute value. Elastic Demand and Inelastic Demand Unit-elastic demand Demand is unit-elastic when the percentage change in quantity demanded is equal to the percentage change in price, so the price elasticity is equal to 1 in absolute value.
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The Price Elasticity of Demand and Its Measurement Learning Objective 6.1 The Midpoint Formula Price elasticity of demand =
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The Price Elasticity of Demand and Its Measurement Learning Objective 6.1 An Example of Computing Price Elasticities FIGURE 6-1 Elastic and Inelastic Demand Curves % Change in Q = (28 - 16) / [(28+16)/2] = 12 / 22 = .546 % Change in P = (20 - 30) / [(20+30)/2] = -10 / 25 = - .4 % Change in Q / % Change in Q = -1.36 A to B
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Learning Objective 6.1 An Example of Computing Price Elasticities FIGURE 6-1 Elastic and Inelastic Demand Curves % Change in Q = (20 - 16) / [(20+16)/2] = 4 / 18 = .22
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This note was uploaded on 10/13/2011 for the course IE 111 taught by Professor Storer during the Fall '07 term at Lehigh University .

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ch_6 - Introduction to Economics Textbook: Hubbard & OBrien...

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