Arc Elasticity eta Managerial EconomicsCharles W Upton P
- Slides: 29
Arc Elasticity “eta” Managerial Economics-Charles W. Upton
P Defining Arc Elasticity 50 20 18 60 64 Q 100 Elasticity
P Defining Arc Elasticity 50 Where: 20 18 60 64 Q 100 Percent change is measured as percent of average value Elasticity
P Defining Arc Elasticity 50 When P changes from 20 to 18, p = -2 20 18 Average value of P = 19 60 64 Q 100 The % change is thus -2/19 Elasticity
The Formula P 50 20 18 60 64 Q 100 Elasticity
The Formula P 50 20 18 60 64 Q 100 Elasticity
The Formula P 50 20 18 60 64 Q 100 Elasticity
The Formula P 50 20 18 60 64 Q 100 Elasticity
The Formula P 50 20 18 60 64 Q 100 Elasticity
An Example P Compute the arc elasticity when P changes from 20 to 18 50 20 18 60 64 Q 100 Elasticity
An Example P 50 20 18 60 64 Q 100 Elasticity
An Example P 50 20 18 60 64 Q 100 Elasticity
An Example P 50 20 18 60 64 Q 100 = -0. 6129 Elasticity
P Reverse the Calculation Compute the arc elasticity when P changes from 18 to 20 50 20 18 60 64 Q 100 Elasticity
P Reverse the Calculation = -0. 6129 50 20 18 60 64 Q 100 Elasticity
Second Example P Compute the arc elasticity when P changes from 10 to 20 50 20 18 60 64 Q 100 Elasticity
Second Example P = -4/7 50 20 18 60 64 Q 100 Elasticity
Arc Elasticity and Tables • 15, 000 units were demanded when the price was $5. • 12, 000 units were demanded when the price was $7. • Compute the elasticity Elasticity
Arc Elasticity and Tables • 15, 000 units were demanded when the price was $5. • 12, 000 units were demanded when the price was $7. • Compute the elasticity Elasticity
Arc Elasticity and Tables • 15, 000 units were demanded when the price was $5. • 12, 000 units were demanded when the price was $7. • Compute the elasticity Elasticity
Arc Elasticity and Tables • 15, 000 units were demanded when the price was $5. • 12, 000 units were demanded when the price was $7. • Compute the elasticity Elasticity
Arc Elasticity and Tables • 15, 000 units were demanded when the price was $5. • 12, 000 units were demanded when the price was $7. Note that we never said • Compute the elasticity which price came first. Elasticity
Which method is best? • The concept of elasticity is defined without reference to any one method of calculation. Elasticity
Which method is best? • The concept of elasticity is defined without reference to any one method of calculation. • There are occasions when the point elasticity formula is best and there are occasions when the arc elasticity formula is best. Elasticity
Which method is best? • The concept of elasticity is defined without reference In to any one we method of use calculation. general tend to • There are point occasions when the point elasticities in class, elasticitybecause formulawe is best haveand there luxuryare occasions when the arc elasticity of examples with niceformula is best. demand curves. Elasticity
Extensions to other Elasticities • Income elasticities (measuring the responsiveness of demand with respect to changes in income). Elasticity
Extensions to other Elasticities • Income elasticities (measuring the responsiveness of demand with respect to changes in income). • Own price elasticities measuring the responsiveness of demand with respect to changes in the price of the good itself. Elasticity
Extensions to other Elasticities • Income elasticities (measuring the responsiveness of demand with respect to changes in income). • Own price elasticities measuring the responsiveness of demand with respect to changes in the price of the good itself. • Cross price elasticities (measuring the responsiveness of demand with respect to the price of other goods). Elasticity
End © 2004 Charles W. Upton Elasticity
