Econ 201 Lecture 6 Notes
Econ 201 Lecture 6 Notes ECON 201
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This 2 page Class Notes was uploaded by Samantha Shea on Wednesday September 21, 2016. The Class Notes belongs to ECON 201 at Michigan State University taught by Professor Liedholm in Fall 2016. Since its upload, it has received 4 views. For similar materials see Micro Economics in Microeconomics at Michigan State University.
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Date Created: 09/21/16
Lecture 6 Notes Wednesday, September 21, 2012:41 PM • Today: ○ Other elasticity measures ○ Uses of elasticity • Other elasticity measures relating to demand ○ Income elasticity of demand ○ Cross price elasticity of demand • Income elasticity of demand is the percent change in quantity demanded divided by a percent change income: ○ E(i)= % change in Q % change in I ○ Income elasticity of demand will be positive for normal goods (+) ○ Negative for inferior goods ( -‐) • Cross elasticity of demand ○ = percentage change in Q(a) percentage change in P(b) ○ Substitutes (+) ○ Complements (-‐) • Importance/ Uses of Elasticity 1. Estimating (predicting) changes in dd antities 2. Estimating (predicting)revenuechanges • Predicting QuantityChanges from Price Change ○ % change in Q(d)= -‐ (E(d)) (% change in Price) • Predicting Quantity changes f ncome changes ○ Change in Q(d) = (E(i)) (%change in income) • Total Sales Revenue ○ (Price) (Quantity) = Total Sales Revenue • Elasticity, price, and Total Revenue Percent Change Percent Change Percent Change Elasticity Price Quantity Revenue Elastic >1 Up, down Down, up Down, up (inverse) Unitary = Up, down Down, up No change Inelastic <1 Up, down Down, up Up, down (direct) Elasticity Price Quantity Revenue Elastic >1 Up, down Down, up Down, up (inverse) Unitary = Up, down Down, up No change Inelastic <1 Up, down Down, up Up, down (direct) • Elasticity and Revenue ○ If elastic demand, price and total revenue INVERSELY related ○ If inelastic demand, price and total revenue DIRECTLYrelated ○ If unit elastic demand, price and total revenue effect is zero
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