# FIN30210 Lecture Notes - Lecture 6: Securities Fraud, Dont, Demand Curve

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Lesson 4 - Elasticity - IN ADDITION TO SLIDES

Martin Shkreli

● Why did he say they need to raise the price of the drug for AIDS?

○ They weren’t making revenue with the previous price

○ Higher costs than just making the drug itself (than just the ingredients)

○ It’s underpriced compared to its peers

■ Which doesn’t actually matter because the peers that are selling

drugs were selling drugs for different diseases

■ There are NO substitutes for this drug so there’s no connection

there

○ Costs are going up (though not by 5,000%)

○ Taking the money and reinvesting it back into making a better drug

■ EXCEPT that didn’t occur at all

● That’s why he got arrested securities fraud (investment fraud)

○ None of these costs would actually fall much on individuals. It was really going to

insurance companies.

● Disguises all of these things as cost implications, but we debunked all of them.

● This is where elasticity comes into play.

Price Elasticity of Demand

● Measuring a responsiveness of the quantity demanded to changes in price

○ NOT SLOPE

■ Because it’s really difficult when you have different goods and you want to

compare them

■ Also, slope is very unit dependent

● Slope can change depending on units

○ So need something that’s not unit-dependent and can compare different goods

○ Use

■ Percentage change in quantity

■ Percentage change in price

● When you solve for elasticity, DON’T FORGET TO TAKE THE ABSOLUTE VALUE

● Problem 4.1

○ So they’re saying it’s -2, but don’t need the negative sign when plugging it in.

○ Percentage change in quantity = 10%

■ And depending on which was positive or negative, the other (price or

quantity) would be the opposite if elasticity is negative in problem and the

same if it’s positive

The Midpoint Formula

● Choose elasticity at the midpoint

○ So to solve a problem for elasticity using the midpoint formula, have to be

given two points on the graph

The Point Price Elasticity

● It takes the demand curve and takes the derivative of the curve with respect to prices

○ Finding the slope

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