BUSS1040 Lecture 4: Lecture 4 - Elasticity, Perfect Competition

• School: University of Sydney
• Department: Business Studies
• Course: BUSS1040
• Professor: Katrien Stevens

Document Summary

= responsiveness of one variable to a change in another variable. = measures how responsive one variable (y) is to changes in another variable (x). One issue with measuring quantitative changes is that different markets use different units of measurement (litres, kilograms, ounces), each market has its own price level (a few cents or millions of dollars). Elasticity is a way we can compare quantitative changes across different situations by looking at proportional (or percentage) changes. Elasticity - proportional change we can calculate the proportional change in a variable by dividing the change in the variable by the variable itself. However, it is not always obvious how to determine the proportional change in a particular variable. The midpoint (arc) method, that uses the averages of the initial and final points. At times we are interested in the elasticity around a particular outcome: In other words, how responsive is the quantity demanded to a change in the price, at (q1,