18_(elasticity)_

18_(elasticity)_ - 10/13/11 Elasticity...

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10/13/11 Elasticity Price Elasticity of Demand Price elasticity of demand  measures how much  Qd  responds to a change in  P . Loosely speaking, it measures buyers’ price sensitivity. Types of Demand Curves The price elasticity of demand is closely related to the slope of the demand  curve. Rule of thumb : The flatter the curve, the greater the price elasticity of  demand. The steeper the curve, the smaller the price elasticity of demand. Calculating Percentage Change To calculate percentage change, we use the  midpoint method : [ (end value – start value)/ midpoint ] x 100% 10/18/11 Elasticity Continued So, if price increases from $200 to $250, would total revenue rise or fall? Total Revenue =  A price increase has two effects on revenue: Higher  means more revenue on each unit you sell. But you sell fewer units (lower 
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18_(elasticity)_ - 10/13/11 Elasticity...

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