5 4 1an22 increasein price 0 d cunitelasticdemand

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Unformatted text preview: ce elasticity of demand= =2 10% The Midpoint Method: A Better Way to Calculate Percentage Change and Elasticity Calculate Assumption Point A: P=$4, Q=120 Point B: P=$6, Q=80 A B, P 50%, Q 33%, E=0.66 B A, P 33%, Q 50%, E=1.5 Midpoint: P=$5, Q=100 (arc elasticity) (Q2-Q1)/[(Q1+Q 2)2/] +Q Price elasticity of demand= (P2-P1)/[(P1+P 2)/2] (P2-P1)/[(P1+P 2)/2] The Variety of Demand Curves The E > 1, elastic E > 1, inelastic E=1, unit elasticity Guided Rule: the flatter the demand curve that passes through a given point, the greater the price elasticity of demand. the steeper the demand curve that passes through a given point, the smaller the price elasticity of demand. The Price Elasticity of Demand The (a) Perfectly Inelastic Demand: Elasticity=0 P D P $5$5 $5$5 4 (b) Inelastic Demand: Elasticity < 1 4 0 D 1.An 22% increase in price… 1.An increase in price… 100 2…leaves the quantity demanded unchanged Q 0 P 90 100 Q 2…leads to an 11% decrease in quantity demanded. $5 4 1.An 22% increase in price… 0 D (c) Unit Elastic Demand: Elasticity =1 80 100 Q 2…leads to a 22% decrease in quantity demanded. (d) Elastic Demand: Elasticity < 1 (e) Perfectly elastic Demand: Elasticity=infinity P P $5$5 4 1.An 22% increase in price… 0 $5 D 50 100 Q 2…leads to a 67% decrease in quantity demanded...
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This note was uploaded on 12/06/2011 for the course BUSINESS Finance taught by Professor Qiuxin during the Summer '11 term at Nanjing University.

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