Econ – September 30
midterm up until todays material (next Thursday)
Today: Elasticity of Demand, total revenue rule, policy application, other elasticities
Elasticities of Supply and Demand:
Price Elasticity of Demand – measures the responsiveness of quantity demanded to a
change in the price, measurement along a demand curve
Eta subscript d = % change in quantity demanded / %change in price
Or the Arc elasticity formula (midpoint fomula)
Eta subscript d = change…..
Or point elasticity formula..(when change in price is very small and you have the demand
The elasticity of demand is usually a negative number. However, we often drop the
negative sign (absolute value it). So, you will see the elasticity of demand written as a
The elasticity of demand generally changes as we move along a demand curve.
When elasticity of demand > 1, demand is elastic, quantity is relatively responsive to
When elasticity of demand