Econ
9/12/07
1.
Elasticity
a.
E
xx
= % ΔQ
x
=
ΔQ
x
.
P
x
% ΔP
x
ΔP
x
Q
x
i.
If

E
xx

> 1
Elastic
ii.
If

E
xx

< 1
Inelastic
iii.
If

E
xx

= 1
Unitary Elastic
b.
Elasticity relates to responsiveness
of demand to changes in price
c.
Perfect Elastic
i.
An “infinitesimal” change in price leads to a huge change in demand
d.
Perfect Inelastic
i.
No matter what the price, people will always demand the same amount
e.
Unitary elastic
i.
The change in price is equal to the change in quantity
ii.
Demand has the form K=P
x
*Q
x
1.
where K is some constant
2.
Point Elasticity and Slope
a.
See Demand curve and slope graph
b.
As you move down the demand curve, elasticity falls even thought the slope is
constant.
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 Spring '08
 Smith
 Microeconomics, Supply And Demand, $5, $10, Arc elasticity

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