Chap004.1 - demanded that results from a 1 percent change...

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1 Elasticity Chapter 4: Elasticity Slide 2 The Effect of Extra Border Patrols on the Market for Illicit Drugs Q(1,000s of ounces/day) P($/ounce) 50 50 S D 80 40 S’ Total Expenditure = P x Q S $250 = $50 x 50 S’ $320 = $80 x 40 Chapter 4: Elasticity Slide 3 Price Elasticity of Demand ± Elasticity z A measure of the extent to which quantity demanded and quantity supplied respond to variations in price, income, and other factors. Chapter 4: Elasticity Slide 4 Price Elasticity of Demand ± Defined z Generally ² A measure of the responsiveness of the quantity demanded of a good to a change in the price of that good. z Formally ² The percentage change in the quantity
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Unformatted text preview: demanded that results from a 1 percent change in its price. Chapter 4: Elasticity Slide 5 Price Elasticity of Demand Measuring Price Elasticity of Demand Observations z Price elasticity of demand will always be negative (inverse relationship between price and quantity). z For convenience we drop the negative sign. Price in Change Percentage Demanded Quantity in Change Percentage Chapter 4: Elasticity Slide 6 Price Elasticity of Demand Measuring Price Elasticity of Demand When is > 1: elastic < 1: inelastic = 1: unit elastic Price in Change Percentage Demanded Quantity in Change Percentage...
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