U of M ECON 1101 - Review of Price Elasticity of Demand (4 pages)

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Review of Price Elasticity of Demand



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Review of Price Elasticity of Demand

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Pages:
4
School:
University of Minnesota- Twin Cities
Course:
Econ 1101 - Principles of Microeconomics

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Principles of Microeconomics ECON 1101 Spring 2010 Department of Economics University of Minnesota Notes On Price Elasticity of Demand Lectures Internet Office Hours M W F 9 05pm 9 55pm Rm WilleyH 175 http www econ umn edu amin0066 HMH 3 105 M 10 45am 1 00pm Instructor Minesh D Amin Email amin0066 umn edu Tel 612 624 9345 Fax This handout will begin by first giving a short review of material we covered in lecture dealing with the price elasticity of demand PED Then we will take a look at three examples of calculating PED First will be the question and after that will be a solution to the problems I would advise you to first try to work out the examples before you check the answers 1 Review of Price Elasticity of Demand The definition of Price Elasticity of Demand PED is Price Elasticity of Demand Percentage Change in Quantity Demanded QD Percentage Change in Price P In order to calculate the PED we need two points on the demand curve QD1 P1 and QD2 P2 In order to calculate the PED we use the midpoint formula QD2 QD1 QD1 QD2 2 PED P2 P 1 P1 P 2 2 Once we have calculated the PED between two points on the demand curve we can say if demand between those points is elastic inelastic or unit elastic as follows Demand is elastic at a certain point if PED 1 Demand is unit elastic at a certain point if PED 1 Demand is inelastic at a certain point if 0 PED 1 2 Notes On Price Elasticity of Demand There are a number of factors that can determine if a demand curve will be more elastic or more inelastic We covered this material on Wednesday February 17th Four Factors Affecting PED 1 Availability of close substitutes 2 Definition of Market 3 Amount of time 4 Necessities vs luxuries When calculating different elasticities it is very important to keep in mind what information you need to calculate a certain elasticity and what information you have available Also sometimes there is information that is not relevant to certain elasticities Be sure you are aware of what information is



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