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Chapter 4

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ECN 104
Syeda Firdaus

Micro Economics Chapter 4 Elasticity Consumer Surplus and Producer Surplus Notes Elasticity and its ApplicationElasticity allows us to analyze supply and demand with accuracy Elasticity is the measure of how much buyers and sellers respond to changes in market conditions Elasticity measure of the responsiveness of quantity demanded or quantity supplied to one of its detrimentsPrice Elasticity of DemandThe LAW OF DEMAND SAYS An increase in price causes a decrease in quantity demanded viceversa But HOW MUCH does quantity demanded change in response to a change in price Elasticity gives us a measure of RESPONSIVENESSPrice Elasticity of Demand Some products consumers are highly responsive to price changes modest price change cause large changes in the quantity demanded ex restaurant meals When QD quantity demanded responds STRONGLY to a change in P price demand is relatively ELASTICFor products such as toothpaste consumers are less responsive to price changes When QD quantity demanded responds WEAKLY to a change in P price demand is relatively INELASTIC The Price Elasticity Coefficient and Formula Price Elasticity of Demand Measure of how much the quantity demanded of good responds to change in the price of the good Is the percentage change in quantity demanded given a percent change in priceComputed asNote price elasticity of demand is always negative due to Law of Demand To eliminate the negative we will take the absolute value Slides 67Mariam Chaudry ECN 104
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