Chapter 4- Elasticity

Chapter 4- Elasticity si p s ' P . gcostt-s.lv 14 s Elastic T pi • inelastic very responsive PÉ = - & - & P " • ← not responsive b/c little change ! I D ! I ble a big change In price caused 1 I 1 In price caused a big demand ' " ' i D small demand change Q ' Q Q QQ Q change > I < 1 In both PT , Qtr , but there is a big difference between the amount they're changing by . - Elasticity Measures responsiveness ( in price mostly ble its what we focus on ) ⊥ NOT measured as slope ble the units complicate calculations Price Elasticity of Demand q =/ percentage change in quantity demanded / = / 4. sad percentage change in price ← 1. sp | * Absolute value ble when Pt then Q - b/c law of Demand =PP= Dtr - Demand decreases by . . + Price increases by . . . or + Demand increases by . - Price decreases by . . . Example : p If { = 2 an DP - 10% , find 1- ☐ Qd 2=1%0%-1 ✗ 10 it ✗ 10 -1 (d) ? zo%=%sQ SO , demand decreases by 20.1 . * The larger the elasticity , the more responsive is the demand curve

scale • E > I > Elastic • E =L → Unit Elastic ( %sQd= i. sp ) • 2<1 → Inelastic Elasticity on graph and elasticity Initial Price btw two points µ ( WI mid ) ⾨ 1%19-1=1 → H ¥ .mx/--/Y : Ij-T-#x:-el=l::.-:-l=/ ? F- ✗ 1 ¥ / =/ ¥ e ×¥ / ← and elasticity at a specific point Midpoint Formula = ( Q2 , * The point you plug in for P and Q is the midpoint Example : P " or - =/ ÷÷÷-/ =/ É÷fl÷l=± 9 i q ' . ; D 19 21 Q 2) P ← 1-4 × 9-1=9 slope of line = ? =÷y= I q q 5- - 1 . @ ← 1- ✗ ¥ 1 = I * Moving downward along 1 I 1-4 × 4-1 = 0.11 a demand curve , the elasticity I - - I -1 • p l l l of demand falls in size . I 5 q Q - Along a demand curve that looks like a rectangular hyperbola " ¥

Perfectly Inelastic : P Things that could be would be new medicine , life saving drugs , things that are absolute necessities Q Perfectly Elastic : Infinite P Things that could be would be a farmer selling wheat for a certain price , which he cant change . Q