Econ 101 1st Edition Lecture 7Outline of Last Lecture I. Antioxidant and redox regulation of gene transcription Outline of Current Lecture I. Elasticity: The response of supply and demand to changes in price and incomeII. 5.1 The price elasticity of demandIII. 5.2 Using Price ElasticityCurrent LectureIV. Elasticity: The response of supply and demand to changes in price and incomea. What do the slopes look like? Is it worth it? How much is going to change?b. You want to know the sensitivities – elasticityc. Predicting changes in marketsi. Firms and policy makers frequently want to know the market impact of things like increased entry of firms into the market (more competition), population growth, income growth, and changes in prices, among other thingsV. 5.1 The price elasticity of demanda. Price elasticity of demand: a measure of the responsiveness of the quantity demanded to changes in price; equal to the absolute value of the percentage change in quantity demanded divided by the percentage change in pricei. The more substitutes there ate the more you’ll substitute outii. What is you’re ability to move round?iii. The price elasticity of demand shows the amount quantity demanded is the absolute value of %(change)Quantity Demanded / %(change)Priceb. Computing Percentage Changes and Elasticitiesi. Always use the initial-value method on testsc. Some determinants of the price elasticity of demandi. Ed = % ∆Q% ∆ PThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.ii.VI. 5.2 Using Price Elasticitya. Predicting Changes in Quantityi. If we have values for two of the three variables in the elasticity formula, we can compute the value of the third1. The price elasticity of demand itself2. The percentage change in quantity3. The percentage change in priceii. Percentage change in quantity demanded = price change in price x Edb. Price elasticity and total revenuei. Total revenue: the money a firm generates from selling its productii. P x Q = Total revenueiii. If Price increases Q (demand) goes down1. If Q (demand) is less than Price the total revenue will fall2. This will happen if Ed>1 a. |(% (change) Qdemand | > | % (change) P |c. Elastic vs. Inelastic demandi.ii. Need to know the total revenue formula for the examVII. Elasticity and Slopea. Most of the time we will have to use math to make use of elasticity information in order to make predictionsVIII. 5.1 The price elasticity of demanda. Price elasticity and the demand curveb. Elastic demand: demand is “elastic” if the price elasticity of demand is greater than one, which means that the percentage change in quantity exceeds the percentage change in price (in absolute value terms)c. Inelastic demand: demand is inelastic if the price elasticity of demand is less tan the percentage change in price (in absolute value terms)d. Unit elastic demand: the price elasticity of demand is one in this case, which means that the percentage change in quantity equals the percentage change in pricee. Perfectly inelastic demand: the price elasticity of demand is zerof. Perfectly elastic demand: the price elasticity of demand is infiniteg. How does the elasticity of demand vary over time?i.h. Price elasticity along a linear demand curvei. Total revenue is maxed at the midpoint of a linear demand curve where demand is unit
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