(BQ) Part 2 book "Economic" has contents: Perfect competition; monopolistic competition, oligopoly, and game theory; wages, unions, and labor; the distribution of income and poverty; public choice - economic theory applied to politics; international trade; international finance; globalization;.and other contents. | © Andrey Bayda/ Find more at CHAPTER 20 Elasticity Introduction In New York City, a Broadway play is performed in a theater with 1,500 seats. Will the play take in more revenue if the average ticket price for a performance is $70 or if it is $120? If you said $120, consider some other questions: Will the play take in more revenue if the average price is $120 or $180? Will it take in more revenue if the average price is $180 or $250? Are you beginning to get suspicious? Perhaps the highest ticket price won’t generate the greatest amount of revenue, but which ticket price will? The answer may surprise you. 20-1 Elasticity: Part 1 The law of demand states that price and quantity demanded are inversely related, ceteris paribus. But it doesn’t tell us by what percentage the quantity demanded changes as price changes. Suppose price rises by 10 percent. As a result, quantity demanded falls, but by what percentage does it fall? The notion of price elasticity of demand can help answer this question. The general concept of elasticity provides a technique for estimating the response of one variable to changes in another. It has numerous applications in economics. 20-1a Price Elasticity of Demand The law of demand states that there is a directional relationship between price and quantity demanded: Price and quantity demanded are inversely related. The law of demand does not tell us how much quantity demanded declines as price rises. The magnitudinal relationship between price and quantity demanded brings us to a discussion of price elasticity of demand, which is a measure of the responsiveness of quantity demanded to changes in price. More specifically, it addresses the percentage change in quantity demanded for a given percentage change in price. (Keep in mind percentage change, not just change.) Let’s say that a seller of a good—a computer—raises the price by 10 percent, and as a result the quantity demanded for the computer .
