Chapter 6 Elasticity Oklahom City Community College6章弹性俄克拉荷马城社区学院.docVIP

Chapter 5 Elasticity A. Price Elasticity of Demand 1. Elasticity – the measure of responsiveness of one variable relative to another. We can do this for any variable, not just economic. 2. Price Elasticity of Demand – Measures the percentage change in Qd relative to a change in percentage change in P. -It helps to give us a better idea of how price changes affect Qd . -Note: for our %? formula we will use the midpoint method. ED=│%?Q/%?P│= │[(Q2-Q1)/Qave]/[(P2-P1)/Pave]│ Note: we take absolute with this measure ( we could use a negative sign just as easily. Since demand follows law of demand [ as P ↑ ( Qd ↓ ] that is why we get a (-) sign. So we get P and Q moving in opposite directions. 3. Elasticity Measures: a. Inelastic – when the responsiveness of Qd is less than the change in price. This is defined to be values of ED 1, which can be written as: ED = %?Q/%?P 1 ( %?Q %?P Note: A perfectly inelastic curve is vertical. One can see that as P changes there are no change in Q. Graph 1: Perfectly Inelastic b. Elastic - when the responsiveness of Qd is greater than the change in price. This is defined to be values of ED 1, which can be written as: ED = %?Q/%?P 1 ( %?Q %?P Note: A perfectly elastic curve is horizontal. One can see that as P changes the result is a complete drop in demand to 0. If price were raised to P2 then demand could be 0. Graph 2: Perfectly Elastic c. unit-elastic – when the responsiveness of Qd is directly equal to the change in price. This is defined to be values of ED = 1, which can be written as: ED = %?Q/%?P = 1 ( %?Q = %?P 4. Elasticity of Demand and Straight-Line Demand Curves a. The elasticity of demand changes as we move along a demand curve. It is not constant. As we move up the demand curve we get elastic measures and down the demand curve inelastic measures. This comes from the fact that at higher points P is greater (so the denominator is larger reducing the Ed measure) and at lower prices