Class Notes (810,487)
Canada (494,138)
Economics (1,582)
ECO101H1 (575)
Jack Carr (83)

Elasticity of Demand

6 Pages
Unlock Document

University of Toronto St. George
Jack Carr

Topic 4 J Elasticity of Demand th th (Week 3-4 Sep 29 J Oct 4 ) z Opening Example: You own the only spring in town, which produces sparkling water that you sell for $10 a bottle; You have no costs, so that your profit equals your total revenue (price X quantity sold); Q1. If you want to increase your revenue, should you raise your price above $10bottle? Q2. Would your answer change if these were other springs to town that also sold sparkling water? Q1: If you raise your price: a. consumer who continues to buy your water would pay more; you earns more money per bottle; :Z]oo Z}K}Z^o}}L-Zo}]L2KL:_ Revenue = price X quantity; price goes up while quantity sold goes down. Should you raise your price? Thus introduced the concept of ^9] oZ] ]}KL_. z Price Elasticity of Demand Elasticity of Demand measures the responsiveness of quantity demanded to a change in price. Formula: Elasticity of demand =% Change in quantity demanded = %Q D % Change in price %P (Due to the law of downward-sloping demand, the elasticity will be negative; just ignore the negative sign.) 1. Mid-Point Convention(calculating %change) %Q = Q D (change in quantity demanded over average quantity demanded); Q D avg %P = P (change in price over average price) Pavg Insight: percentage change is the same with going up from A to B or going down from B to A on the curve. e.g.1 J calculating percentage change Situation Price Quantity Demanded % Q = 200 20%; A 0.90 1,100 1000 % P = 0.2 = 20% B 1.10 900 1 2. Terminology D Perfectly inelastic e=0 Q }ZL[ ZL2L}KZ}] ZL2Z Inelastic 0 < e < 1 Q is not very responsive to a change in price; D Unit elastic e=1 Q Dhanges at the same pace as the price; Elastic ,,L Q is very responsive to a change in price; Perfectly elastic )L Q is unlimited at certain price; and zero if price changes; ECO100Y1-Pesando-Notes edited by Eva Wu
More Less

Related notes for ECO101H1

Log In


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


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.