rohlf_lecture6 - Elasticity and other applications of...

Info icon This preview shows pages 1–6. Sign up to view the full content.

View Full Document Right Arrow Icon
1 Elasticity and other applications of Supply and Demand An important concept in evaluating demand and supply is “elasticity” Generally, given two variables X and Y, the elasticity is % change in X / % change in Y Different types of elasticities Price elasticity % change in Q / % change in price Income elasticity % change in Q / % change in income
Image of page 1

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

View Full Document Right Arrow Icon
2 Coefficient of elasticity  =   D Q Q D P P = Percentage change in quantity demanded Percentage change in price Price elasticity of demand (coefficient of demand elasticity)
Image of page 2
3 Coefficient of elasticity  =   - 100 1000 $.50 $2.50 = - 10% 20% = - .5 Example Suppose increase in price of six-pack of coke from $2.50 to $3 Leads to a decrease in quantity purchased from 1000 to 900
Image of page 3

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

View Full Document Right Arrow Icon
4 D Q / [( Q 1 + Q 2 ) / 2] D P / [ P 1 + P 2 ) / 2] = 100/ (1900/ 2) $.50 / ($5.50/ 2) = 100/ 950 $.50 / $2.75 = 10.5% 18.2% = .58 Arc elasticity Note that computation of elasticity depends on whether you use beginning or ending as reference point Sometimes we use “arc elasticity”, computing % change using average of starting and ending values
Image of page 4
5 Elasticity Value We categorize the elasticity value into 3 types: (absolute value of) elasticity > 1: elastic (absolute value of) elasticity = 1: unit elastic (absolute value of) elasticity < 1: inelastic
Image of page 5

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

View Full Document Right Arrow Icon
Image of page 6
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern