Elasticities of supply and demand, Microeconomics

ELASTICITIES OF SUPPLY AND DEMAND

  1. Usually, elasticity is a measure of the sensitivity of one variable to the other.
  2. It told us the percentage change in one variable in response to a one percent alteration in another variable.
  3. Price Elasticity of Demand
  •      Calculates the sensitivity of quantity demanded with price changes.
  •      It calculates the percentage change in the quantity demanded for a good or services that results from one percent change in the price of that particular good or service.
  1.  The price elasticity of demand is:

373_price elasticity of demand.png

 

– The percentage change in a variable is the complete change in the variable divided by original level of the variable.

– Thus the price elasticity of demand is also:

 

2458_price elasticity of demand1.png

2. Interpreting Price Elasticity of Demand Values

 1) Due to the inverse relationship between P and Q; EP is -ve.

 2) If IEPI > 1, the percent change in quantity is more than the percent change in price.  We state that the demand is price elastic.

3) If IEPI < 1, the percent change in quantity is less than the percent change in price.  Then we say that the demand is price inelastic.

3. The basic determinant factor for price elasticity of demand is the accessibilty of substitutes.

– Many substitutes demand is price elastic

– Some substitutes demand is price inelastic

Price Elasticities of Demand

 

1907_price elasticity of demand3.png

1553_price elasticity of demand4.png

Posted Date: 7/24/2012 8:41:45 AM | Location : United States







Related Discussions:- Elasticities of supply and demand, Assignment Help, Ask Question on Elasticities of supply and demand, Get Answer, Expert's Help, Elasticities of supply and demand Discussions

Write discussion on Elasticities of supply and demand
Your posts are moderated
Related Questions
Government Budget Deficits Governments have been traditionally spending more what they could earn by way of taxes and sale of economic goods and services produced by them. The

what is the differences between utility theory, indifference theory and revealed preference theory

Suppose that the total revenue function of a firm is given by TR(q) = 120q - 2q^2, where q is the level of output. Find the level of output q that will maximize the firm’s total re

Q. What do you mean by Externality? An externality exists when the actions of one individual affect the wellbeing of other individuals without any compensation taking place. F

What are the main causes of unemployment? Two main paths are available; demand-deficient unemployment and real wage unemployment. After explaining unemployment (percentage o

how do cooperative and noncooperative games differ

Dividends:Several companies pay a cash dividend (annually orquarterly) to the owners of its shares. This is an enticement to investors to buy that company's shares and signifies a

compare and contrast adam smith''s theory of absolute advantage theory and david ricardo''s comparative advantage theory of international trade.

The owner of the sole stage-theatre in the city of Vordervilla has found through   experience that the cost of running his 600-seat theatre remains virtually the same irrespective

Trends in the Growth of Production and  Productivity: From an analysis of the trends of growth of production and productivity of agricultural sector as a whole and of differen