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Unformatted text preview: Exam 2 Notes Elasticity The numerical measure of the responsiveness of Q^D or Q^S to one of its determinants Price Elasticity of Demand The ratio of the % change in the quantity demanded to the % change in the price as we move along the demand curve Equation Price Elasticity of Demand=% change in Q^D/ % change in P Or =(Q2Q1/Q Average)/(P2P1/P Average) Calculating % ChangeEnd valueStarting value/Start value * 100% Midpoint MethodEnd valueStarting value/(Start+End/2) * 100% Elasticity Types Inelastic demand=<1 or less than 1Elastic demand=>1 or greater than 1Unit Elastic= 1 Perfectly inelasticWhen the Qd does not respond at all to changes in the price (Demand curve is a vertical line) Perfectly elastic When any price increase will cause the Qd to drop to zero. (Demand curve is a horizontal line) Predicts how changes in price will affect the total revenue Total Revenue Price * Quantity sold A Price EffectAfter a price increases, each unit sold sells at a higher price, tends to raise revenue...
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This note was uploaded on 02/06/2012 for the course ECONS 101 taught by Professor Michalski during the Fall '08 term at Washington State University .
 Fall '08
 MICHALSKI

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