EC101Outlines07SupplyDemandShifts

The quantity demanded will increase the demand curve

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Unformatted text preview: ($) 6 5 4 D A Elasticity of Demand measures movements along the demand curve,… B 3 2 1 0 Quantity 40 60 D NOT shifts in the curve. 120 Quantity EC101 DD & EE / Manove Elasticity of Demand p 20 So far we’ve seen that… When the price rises, the quantity demanded falls, and quantity supplied increases. But by how much will the quantity demanded fall? And by how much will the quantity supplied rise? EC101 DD & EE / Manove Elasticity of Demand>Who Cares? p 21 Firms care: - " if we raise the price of gas by $0.08/gallon, will this bring down our profits, or will they go up?" Governments care: - IN many countries: "if we want to cut teenage smoking by 50%, should cigarette taxe be increased by $.50 a pack? by more? less? at all? _marriage in india EC101 DD & EE / Manove Elasticity of Demand>Who Cares? p 22 Most important, your … - mother cares…"by how much will my daughters bill drop if i make her pay half of it? - how much less junk food will a kid eat if he has to pay for it? EC101 DD & EE / Manove Elasticity of Demand>Who Cares? p 23 To answer these questions, we have to understand the concept of elasticity,… …which measures the responsiveness of one variable to another as a ratio of percentages. We begin with the price elasticity of demand. Sometimes we call it just the “elasticity of demand.” And sometimes the “elasticity of demand with respect to the price.” These three expressions mean the same thing. EC101 DD & EE / Manove Elasticity of Demand>Who Cares p 24 Price Elasticity of Demand The elasticity of demand tells us how sensitive the quantity demanded is to the price. More precisely, the elasticity of demand defined by: is “epsilon” Percentage Change in Quantity Demanded Percentage Change in Price %Q %P or equivalently by [ " change ", Q " quantity ", P " price "] EC101 DD & EE / Manove Elasticity of Demand>Definition p 25 Example: Cigarettes Suppose that when the price of cigarettes rises by 10%,… the quantity of cigarettes demanded falls by 5%. Then the elasticity of demand for cigarettes is: = - 5& ? 10% ? EC101 DD & EE / Manove Elasticity of Demand>Definition = - 1/2 ? p 26 EC101 DD & EE / Manove Clicker Question p 27 EC101 DD & EE / Manove Clicker Question p 28 End of File EC101 DD & EE / Manove End of File p 29...
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