Ch 4 Elasticity - Elasticity Chapter 4 1 Elasticity...

Info iconThis preview shows pages 1–9. Sign up to view the full content.

View Full Document Right Arrow Icon
Elasticity Chapter 4 1
Background image of page 1

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

View Full DocumentRight Arrow Icon
Elasticity Elasticity: measure of responsiveness If you change something such as the price, how does the quantity respond 2 P P Q Q D D
Background image of page 2
Price Elasticity of Demand Price Elasticity of Demand : A measure of the responsiveness of the quantity demanded to a price change Can we use the slope of the line? No, the slope will always be based on the unit of measurements of the quantity; i.e. Slope = - $5 / 2 pizzas Will results in an invalid comparison across different goods We want a measurement that is 3
Background image of page 3

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

View Full DocumentRight Arrow Icon
Price Elasticity of Demand Units of measurement vary so we need “unit- free” measure → Use percentage changes: %∆Q d %∆P Starting point→ Use percentage changes Price Elasticity of Demand = (ε d ) = %∆Q d %∆P 4
Background image of page 4
Price Elasticity of Demand 5 3 Ranges ε d > 1 → > 1 → > → “elastic” demand ε d < 1 → < 1 → < → “inelastic” demand ε d = 1 → = 1 → = → “unit elastic” demand P % Qd % Qd % P % P % Qd % Qd % P % P % Qd % Qd % P %
Background image of page 5

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

View Full DocumentRight Arrow Icon
Price Elasticity of Demand 6 Calculating Percentage Changes Base = = average Qd Base = = average P = = = cont next slide % 2 SumQd 2 SumQd P % Qd % avgP P avgQd Qd 2 2 SumP P SumQd Qd
Background image of page 6
Price Elasticity of Demand 7 = = = ε d = SumP P SumQd Qd P SumP SumQd × Qd SumQd SumP P × Qd SumQd SumP slope × 1
Background image of page 7

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

View Full DocumentRight Arrow Icon
Example: Qd = -1/2 *P + 6 What is ε d ? If:
Background image of page 8
Image of page 9
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 02/23/2012 for the course ECONOMICS 251 taught by Professor Kelly during the Summer '11 term at Purdue University-West Lafayette.

Page1 / 29

Ch 4 Elasticity - Elasticity Chapter 4 1 Elasticity...

This preview shows document pages 1 - 9. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online