Price Elasticity of Demand Defined Generally .A measure of the responsiveness of the quantity demanded of a good to a change in the price of that good ● Formally o The percentage change in the quantity demanded that results from a 1 percent change in its price Chapter 4: Elasticity Slide 11
MB MC Chapter 4: Elasticity Slide 11 Price Elasticity of Demand ◼ Defined ⚫ Generally ◆A measure of the responsiveness of the quantity demanded of a good to a change in the price of that good ⚫ Formally ◆The percentage change in the quantity demanded that results from a 1 percent change in its price
Price Elasticity of Demand a Measuring Price Elasticity of Demand Percentage Change in Quantity Demanded Percentage change in Price Chapter 4: Elasticity Slide 12
MB MC Chapter 4: Elasticity Slide 12 Price Elasticity of Demand ◼ Measuring Price Elasticity of Demand Percentage Change i nPrice Percentage Change i nQuantity Demanded
Price Elasticity of Demand ■ Assume The price of pork falls by 2% and the quantity demanded increases by 6% Then the price elasticity of demand for pork is 6 3 2 Chapter 4: Elasticity Slide 13
MB MC Chapter 4: Elasticity Slide 13 ◼ Assume ⚫ The price of pork falls by 2% and the quantity demanded increases by 6% ◆Then the price elasticity of demand for pork is Price Elasticity of Demand 3 2 6 = − −
Price Elasticity of Demand Measuring Price Elasticity of Demand Percentage Change in Quantity Demanded Percentage Change in Price ● Observations Price elasticity of demand will always be negative (i.e, an inverse relationship between price and quantity o For convenience we drop the negative sign Chapter 4: Elasticity Slide 14
MB MC Chapter 4: Elasticity Slide 14 Price Elasticity of Demand ◼ Measuring Price Elasticity of Demand ⚫ Observations ⚫ Price elasticity of demand will always be negative (i.e., an inverse relationship between price and quantity) ⚫ For convenience we drop the negative sign Percentage Change i nPrice Percentage Change i nQuantity Demanded
Price Elasticity of Demand a Measuring Price Elasticity of Demand 1: elastic When Percentage Change in Quantity Demanded is <1: inelastic Percentage Change in Price 1: unit elastic Chapter 4: Elasticity Slide 15
MB MC Chapter 4: Elasticity Slide 15 Price Elasticity of Demand ◼ Measuring Price Elasticity of Demand When is > 1: elastic < 1: inelastic = 1: unit elastic Percentage Change inPrice Percentage Change inQuantity Demanded