Class Notes (809,486)
Canada (493,751)
Economics (486)
ECON 103 (154)
Lecture 5

Econ 103 Lecture 5 Jan 21st

3 Pages
75 Views

School
Simon Fraser University
Department
Economics
Course
ECON 103
Professor
Iryna Dudnyk
Semester
Winter

Description
Econ 103 Lecture 5 Jan. 21st -Elasticity (E) = measures how responsive Q is to changes in M and P's. -E > 0 => positive relationship -E < 0 => negative relationship -E = 0 => no response -Large E => Q is "sensitive" (or responsive) (Own-price) Elasticity of Demand (most commonly used) E - by how many % Q demanded changes in response to 1% change in price. Ex. 1: -At Po = 5, Qo = 20 P1 = 7.50, Q1 = 5 Calculate Elasticity: ***** see notebook for graph ***** ( 1 ) -E = -75/+50 = -1.5 => for each 1% change in P, Q changes by 1.5% Ex. 2: - P = 5, Q = 20 - Firm knows E = -1.5 If firm increases P by 10% how many units will it sell? % change Q = (-1.5) x (10) = -15% 15% out of 20 = 3 Q1 = 17 (P1 = 5.50) Arc elasticity - use % change between 2 points. -value depends on which point is initial. *** use the following formula for exam: E= ∆%Q/∆%P = (∆Q/∆P) x (Po/Qo) E= (Q1-Qo/P1-Po) x (Po/Qo) Point E - calculated for one point on D curve. ****** see notebook for graph ****** ( 2 ) Point E =(1/slope) x (P/Q) Own P elasticity is always negative, except when 0. (we will often not use the negative sign, therefore 2 = -2) => use absolute value | E | - if | E | > 1 => Elastic demand. - ∆%Q/∆%P > 1 => ∆%Q > ∆%P -> Q is "price-sensitive" ; small %∆P generates large % response in Q. E = -5 P(up) 10%, Q(down) 50% -| E | < 1 => Inelastic demand E = -0.5 P(up) 10% Q(down) 5% => Q is not price sensitive. -| E | = 1
More Less

Related notes for ECON 103

Log In

OR

Don't have an account?

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view

OR

By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.

Request Course
Submit