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Lecture: Elasticity

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ECON 1050

Lecture 6 ECON1050 Page 1And I Quote Focus onelasticity for the midterm MICROECONOMICS exams Know how to Elasticity calculate elasticity and be prepared to do elasticity Focus How does a change in price affect consumers buying plans problems ELASTICITY OF DEMAND Price Elasticity of Demandmeasure of the sensitivity of a product to a price change when all other influences on consumers buying plans are constanto example price Pepsi demand Coke gas consumption remains constant despite price increasesfewer substitutes yields a steeper demand curveE change Q change P x 100 DDochangefinal valueinitial valueaverage value x 100 o the calculated value of E will be negative but we take the absolute value to make it positive o we usechange vs absolute change to compare values directly 2 increase in cookies is not comparable to a 2 increase in a car but a 2 increase is comparable Q is a function ofPprice of the good causes movement along the curve direct relationship x P price of related goods causes a shift in the curve direct or inverse relationship y depending on the type of productIincome causes a shift in the curve direct relationshipUutility or preferences causes a shift in the curve direct relationshipPoppopulation causes a shift in the curve direct relationshipdQ P P I 0x1y2 is a sensitivity factor and is given in most cases Inelastic and Elastic Demand A Perfectly Inelastic DemandQ is not dependent on P at all D vertical graphImportant Noteexample University of Michigan football ticketsElasticity can vary on a graphitdoes not have to be constant B Unitary Elastic Demand throughout the graph ForElasticity1 instance a parabola with have an ochange Q change P Delastic section a unitary elasticsection and an inelastic section
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