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Lecture Element of economics - Chapter 3: Elasticity/sensitivity analysis

At the end of this lecture, students should be able to define elasticity, define price elasticity of demand/supply and its determinants, compute the price elasticity of demand/ supply, know the variety of demand/supply curves, to know the relationship between total revenue and the price elasticity of demand, define and compute income elasticity of demand, define and compute cross-price elasticity of demand. | of 42 Elasticity/sensitivity analysis Learning Objectives At the end of this lecture, students should be able to Define Elasticity Define Price Elasticity of Demand/Supply and Its Determinants Compute the Price Elasticity of Demand/ Supply Know the Variety of Demand/supply Curves To know the relationship between Total Revenue and the Price Elasticity of Demand Define and compute Income Elasticity of Demand Define and compute Cross-Price Elasticity of Demand of 42 Elasticity Elasticity is a general concept that can be used to quantify the response in one variable when another variable changes. The Elasticity of Demand Price Elasticity of Demand Price-Cross Elasticity of Demand Income Elasticity of Demand of 42 of 42 Price Elasticity of Demand A popular measure of elasticity is price elasticity of demand measures how responsive consumers are to changes in the price of a product. Sign of Price Elasticity According to the law of demand, whenever the price rises, the . | of 42 Elasticity/sensitivity analysis Learning Objectives At the end of this lecture, students should be able to Define Elasticity Define Price Elasticity of Demand/Supply and Its Determinants Compute the Price Elasticity of Demand/ Supply Know the Variety of Demand/supply Curves To know the relationship between Total Revenue and the Price Elasticity of Demand Define and compute Income Elasticity of Demand Define and compute Cross-Price Elasticity of Demand of 42 Elasticity Elasticity is a general concept that can be used to quantify the response in one variable when another variable changes. The Elasticity of Demand Price Elasticity of Demand Price-Cross Elasticity of Demand Income Elasticity of Demand of 42 of 42 Price Elasticity of Demand A popular measure of elasticity is price elasticity of demand measures how responsive consumers are to changes in the price of a product. Sign of Price Elasticity According to the law of demand, whenever the price rises, the quantity demanded falls. Thus the value of demand elasticity is always negative, but it is stated in absolute terms. of 42 of 42 What Information Price Elasticity Provides Price elasticity of demand and supply gives the exact quantity response to a change in price. of 42 Slope and Elasticity Changing the units of measure yields a very different value of the slope, yet the behavior of buyers in both diagrams is identical. of 42 Types of Elasticity Hypothetical Demand Elasticities for Four Products PRODUCT % CHANGE IN PRICE (%DP) % CHANGE IN QUANTITY DEMANDED (%DQD) ELASTICITY (%DQD d %DP) Insulin +10% 0% 0.0 Perfectly inelastic Basic telephone service +10% -1% -0.1 Inelastic Beef +10% -10% -1.0 Unitarily elastic Bananas +10% -30% -3.0 Elastic of 42 Perfectly Elastic and Perfectly Inelastic Demand Curves When demand does not respond at all to a change in price, demand is perfectly inelastic. E= zero Demand is perfectly elastic when quantity demanded drops to zero at the