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by: Miss Adeline Weimann


Miss Adeline Weimann
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Class Notes
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This 2 page Class Notes was uploaded by Miss Adeline Weimann on Wednesday September 9, 2015. The Class Notes belongs to ECON 200 at University of Washington taught by Salehi-Esfahani in Fall. Since its upload, it has received 28 views. For similar materials see /class/192478/econ-200-university-of-washington in Economcs at University of Washington.




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Date Created: 09/09/15
Summary Notes for Session 5 Econ 200A The concept of price elasticity of demand If a store reduces it price of clothing will it earn more or less revenue If a store wants to maximize revenues of sale of its stock of shirts should it reduce price or increase it Your first instinct may say increase Take 2 different stores A and B Store A sells 100 at price of 10 each TR 1000 Now suppose it increases its P by 1 to P11 and according to our demand curve Q demanded falls by 1 so he sells 99 at 11 each TR 1089 This store s total revenue has increased Store B sells 100 at a price of 10 each TR 1000 Now suppose it increases its P by 1 and its sale falls to a quantity of 50 So now its TR 550 In this demand curve the quantity demanded Q falls by a lot when price rises Which store is likely facing a lot of competition The answer to the question of should a store lower or raise its price to maximize revenues depends on the price elasticity of demand for its good Certainly a part of this elasticity has to do with the slope but that is not all We consider not the absolute changes from 100 to 99 or 10 to 11 but the percentage change in Q as P changes in percentage change This measure is appropriately free of units so it does not matter whether we are doing the analysis in terms of dollars or cents or whether Q is in tons LBS yards etc Elasticity dQQdPP or dQdP PQ Or 8 slope of the demand curve PQ


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