Chapter 7-1

# Chapter 7-1 - The Concept of Elasticity The Elasticity of...

This preview shows pages 1–4. Sign up to view the full content.

1 The Elasticity of Demand Chapter 7 The Concept of Elasticity • Elasticity is a measure of the responsiveness of one variable to another. • The greater the elasticity, the greater the responsiveness. Laugher Curve Q. What’s the difference between an economist and a befuddled old man with Alzheimer’s? A. The economist is the one with a calculator. The Concept of Elasticity Elasticity is a measure of the responsiveness of one variable to another. • The greater the elasticity, the greater the responsiveness. Price Elasticity • The price elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price. price in change Percentage demanded quantity in change Percentage = E D Sign of Price Elasticity • According to the law of demand, whenever the price rises, the quantity demanded falls. Thus the price elasticity of demand is always negative. • Because it is always negative, economists usually state the value without the sign.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
2 What Information Price Elasticity Provides • Price elasticity of demand and supply gives the exact quantity response to a change in price. Classifying Demand and Supply as Elastic or Inelastic • Demand is elastic if the percentage change in quantity is greater than the percentage change in price. E > 1 Classifying Demand and Supply as Elastic or Inelastic • Demand is inelastic if the percentage change in quantity is less than the percentage change in price. E < 1 Elastic Demand • Elastic Demand means that quantity changes by a greater percentage than the percentage change in price. Inelastic Demand • Inelastic Demand means that quantity doesn't change much with a change in price. Defining elasticities • When price elasticity is between zero and -1 we say demand is inelastic . • When price elasticity is between -1 and - infinity, we say demand is elastic . • When price elasticity is -1, we say demand is unit elastic .
3 Elasticity Is Independent of Units • Percentages allow us to have a measure of responsiveness that is independent of units.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

### Page1 / 8

Chapter 7-1 - The Concept of Elasticity The Elasticity of...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online