ECO 105 Goel Week 4 Notes: 9/8-9/11
ECO 105 Goel Week 4 Notes: 9/8-9/11 ECO 105
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This 2 page Class Notes was uploaded by Daniel Hemenway on Sunday September 13, 2015. The Class Notes belongs to ECO 105 at Illinois State University taught by Rajeev Goel in Fall 2015. Since its upload, it has received 52 views. For similar materials see Principles Economics in Economcs at Illinois State University.
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Date Created: 09/13/15
ECO 105 Slight Importance Goel 98911 Moderate Importance High Importance Chapter 6 Elasticity A measure of a variable39s sensitivity to a change in another variable Price Elasticity of Demand ED Income Elasticity of Demand E1 CrossPrice Elasticity of Demand Exv Price Elasticity of Supply Es Price Elasticity of Demand ED Responsiveness of Quantity Demanded of a good to changes in its price ED AQD AP Ratio of percentages Does not have a unit 0 ED while always negative is sometimes taken in absolute value for interpretation ED 1 Unit elastic demand ED gt 1 Elastic demand ED lt 1 Inelastic demand Midpoints Formula ED Q2 Q1Q2 Q12 PZ P1P2 quot39 PllZ Elasticity and Slope The more horizontal the curve demand or supply the more elastic and vice versa Perfectly Elastic Perfectly Inelastic S S Eo00 Eo0 D Q 0 Q s s Esoo Es0 s s ECO 105 Goel 98911 0 Price Elasticity of Demand Determinants Availability of Substitutes o More substitutes more elastic demand Relative importance of the good in consumer s budget Time to adjust to price changes Necessities ED lt 1 vs Luxuries ED gt 1 0 Total Revenue Test Total Revenue SALES P x Q If P 1 and TR 1 then ED gt 1 elastic If P 1 and TR 1 then ED lt 1 inelastic If P changes but TR doesn t change then ED 1 unit elastic Useful for businesses considering raising prices 0 Applications of Elasticity Price changes with inelastic demands firms can afford to raise prices without worrying about revenue losses