Chapter_6_-_Elasticity

# Chapter_6_-_Elasticity - 1 What is the price elasticity of...

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1 What is the price elasticity of demand? Measuring the price elasticity of demand: Number of eggs (In millions) Price of an egg (in FILS) D A B P1=10 P2=20 Q1=1 Q2=0.99

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2 PRICE IN CHANGE DEMANDED QUANTITY IN CHANGE DEMAND OF ELASTICITY PRICE % % An alternative method: the midpoint method PRICE IN CHANGE DEMANDED QUANTITY IN CHANGE DEMAND OF ELASTICITY PRICE % % Interpreting the price elasticity of demand Price of Shoelaces (per pair) Quantity of shoelaces (Billions per year) Price of pink belts Quantity of pink belts
3 Classifying intermediate cases If the price elasticity of demand is equal to 1 then _________________________________________ If the price elasticity of demand is greater than 1 then ______________________________________ If the price elasticity of demand is less than 1 then _________________________________________ Application The price elasticity of demand in the pen market is equal to: The price elasticity of demand in the housing market is equal to: The price elasticity of demand in the restaurant meals market is equal to: Price of a pen Quantity of pens (millions per year) Price of a house In thousands number of houses In thousands Price of restaurant meal Number of restaurant meals In thousands D D D A A A B B B 0.90 1.10 1,050 950 1,100 900 90 110 9 1 1 1,200 800

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4 The demand for pens is________________________________ The demand for houses is ______________________________ The demand for meals is_______________________________ Price effect and Quantity effect What is total revenue? What is the price effect? What is quantity effect? Price of a house In thousands number of houses In thousands D A B 1,100 900 90 110 Price of a house In thousands number of houses In thousands D A 1,100 90 Price of restaurant meal Number of restaurant meals In thousands D A 9 1,200 Price of restaurant meal Number of restaurant meals In thousands D A B 9 11 1,200 800
5 If demand for a good is unit-elastic, an increase in the price _____________ total revenue. In this case, the quantity effect and the price effect____________________________________________

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Chapter_6_-_Elasticity - 1 What is the price elasticity of...

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