ECO101H1 Lecture Notes - Hot Dog

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8 Apr 2012
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Lecture Assignment #3- Elasticity 20110926
  (Percentage change)
If >1 = elastic
If <1= inelastic
Example 1: 20%/10% = 2 : meaning >1 = elastic
Example 2: 10%/20%= 0.5: meaning <1= inelastic
d= Price elasticity of Demand
∑s= price elasticity of supply
∑I= income of demand elasticity
∑x/y= Cross Price Elasticity
1) ∑D Price Elasticity of Demand
- ∑d= (-) %Qxd/%Px= (-) %Q/ %P
- Why? Because as price Increase, Qd decreases = negative relationship
-
2) Relationship between d and TR
3) ∑d= (-) %Q/ %P
a. N D
4) TR= P x Q
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As price Increase
∑d
TR
Type
N>D
>1
Elastic
N=D
=1
No change
Unit Elastic
N<D
<1
Inelastic
3) Arc Elasticity
Reminder: ∑d= (-) %Q/ %P
P= -5
q=+10
d= - 10/10 = -1
Base is Point A
- d= -(10/10) / (-5/10) = 2
Base is point B
- d= - (10/20) / (-5/5) = ½
** Arc Elasticity- Midpoint Formula
d= - (Q/ Average q) / (P/ Average Price)
Calculation referring to the above example: d= - (10/15) / (-5/7.5)=1
To prove the above calculation right, calculate TR: TR for A= 100; TR for B= 100 means Unit Elastic
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Mid Point Formula-
d= - (Q/ Average q) / (P/ Average Price)
>1= Elastic
=1 Unit Elastic
<1= Inelastic
Price Elasticity of Demand
Arc Elasticity
d= - 
Midpoint Formula
d= - (Q/ Average q) / (P/ Average Price)
>1= Elastic
=1 Unit Elastic
<1= Inelastic
Point Elasticity
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