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ECON 208 - Notes, week of Sep 22

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Economics (Arts)
ECON 208
Lee Ohanian

Adrienne Pacini ECON 208 WEEK September 22 2009 ELASTICITYElasticity the sensitivity of quantity demanded to change in pricePrice Elasticity of DemandElasticity is related to the slope of the demand curve o The steeper the line the less sensitive or elastic the demandAs a curve shifts outward with the same slope elasticity at each price falls o The slope only gives absolute changes Measuring Price Elasticity elasticity PQDemand elasticity is negative but we focus on absolute valuesMeasures the change in price and quantity relative to some base values of price and quantityTo get point elasticity at a given price where PP PQPQ averageo Can also be seen as slope of rayslope of curveIf the slope of the ray is greater than the slope of the curve Q is greater than P o Demand is elasticElasticity falls as you move down a straight line demand curveWhenperfectly elastic horizontal line when 0 perfectly inelastic vertical lineParabola curve concave upward unit elastic 1When demand is elastic total expenditure increases as price falls and viceversa Total expenditure reaches a maximum when demand is unitaryCalculating Elasticity of DemandFor any price you can find the quantity demanded and get the slope of the rayThe equation te
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