BUS 111 Lecture Notes - Lecture 1: Distilled Beverage
Document Summary
Any item has a demand affected by its price. The sensitivity of demand to price change is called the elasticity of demand. Theorem: if q=d(p) is demand as a function of price, the elasticity of demand is given by: Example: suppose that blockbuster found that the demand for dvd rentals was given by d(p)=120-20p, where d= number of dvds rented per day, and p= the price per rental. Find e(2), e(4), and the price where e(p)=1. This means that a 1% increase in price results in a 0. 5% decrease in demand. This means that a 1% increase in price results in a 2% decrease in demand. 1/1=20p/120-20p cross multiply and solve for p. P=3the elasticity is 1 when the price is , meaning a 1% increase in price would result in a 1% decrease in demand. Def: for a product or service with elastic demand q=d(p) and elasticity e=-p/q q" , we say:
