Textbook Notes (368,448)
Economics (43)
ECON 4033 (6)
Campbell (1)
Chapter 4

# Econ211 Ch4.docx

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School
Department
Economics
Course
ECON 4033
Professor
Campbell
Semester
Winter

Description
Price Elasticity of DemandAn increase in supply bringsA large fall in price A small increase in the quantity demandedThe contrast between the two outcomes in Figure 41 highlights the need forA measure of the responsiveness of the quantity demanded to a price change1The price elasticity of demand is a unitsfree measure of the responsiveness of the quantity demanded of a good to a change in its price when all other influences on buying plans remain the sameCalculating Price Elasticity of DemandThe price elasticity of demand is calculated by using the formulaPercentage change in quantity demandedPercentage change in priceTo calculate the price elasticity of demandWe express the change in price as a percentage of the average pricethe average of the initial and new priceand we express the change in the quantity demanded as a percentage of the average quantity demandedthe average of the initial and new quantityFigure 42 calculates the price elasticity of demand for pizzaThe price initially is 2050 and the quantity demanded is 9 pizzas an hourThe price falls to 1950 and the quantity demanded increases to 11 pizzas an hourThe average price is 20 and the average quantity demanded is 10 pizzas an hourThe percentage change in quantity demanded Q is calculated as QQave x 100 which is210 x 10020The percentage change in price P is calculated as PP x 100 which isave 120 x 1005The price elasticity of demand is 2
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