Own-Price Elasticity of Demand .Q: Why not just use the slope of a demand curve to measure the sensitivity of quantity demanded to a change in a commodity's own price? P A: Because the value of sensitivity then depends upon the(arbitrary) units of measurement used for quantity demanded
Own-Price Elasticity of Demand ◆Q: Why not just use the slope of a demand curve to measure the sensitivity of quantity demanded to a change in a commodity’s own price? ◆A: Because the value of sensitivity then depends upon the (arbitrary) units of measurement used for quantity demanded
Arc and point elasticities ◆An“ average”own- price elasticity of demand for commodity i over an interval of values for p i is an arc elasticity, usually computed by a mid-point formula. Elasticity computed for a single value of p, is a point elasticity
Arc and Point Elasticities ◆An “average” own-price elasticity of demand for commodity i over an interval of values for pi is an arcelasticity, usually computed by a mid-point formula. ◆Elasticity computed for a single value of pi is a point elasticity
Arc Own-Price Elasticity What is the“ average”oWn- price elasticity of demand for prices in an interval centered on p;? p, th 0△X p1 X,P%△ X," Xi X*
Arc Own-Price Elasticity pi Xi * pi ’ pi ’+h pi ’-h What is the “average” own-price elasticity of demand for prices in an interval centered on pi ’? Xi X '" i " X p i i i i X p * , % * % =
Arc Own-Price Elasticity What is the“ average”oWn- price elasticity of demand for prices in an interval centered on p;? p1+ 6△X p1 X,P%△ X," Xi X* 2h 0△pi=100×,%AX1=100× X1"-X) Pi (X1"+X")/2
Arc Own-Price Elasticity pi Xi * pi ’ pi ’+h pi ’-h What is the “average” own-price elasticity of demand for prices in an interval centered on pi ’? X p i i i i X p * , % * % = % ' p h p i i = 100 2 % ( " '") ( " '") / * X X X X X i i i i i = − + 100 2 Xi X '" i
Point own-Price elasticity What is the own-price elasticity of demand in a very small interval of prices centered on pi? p, th Ash→0, p1 X," Xi X*
Point Own-Price Elasticity pi Xi * pi ’ pi ’+h pi ’-h What is the own-price elasticity of demand in a very small interval of prices centered on pi ’? Xi X '" i " As h → 0