1、C H A PT E R5EElasticlasticityityanandditsAitsAppppllicationicationEcP R onomI N C I P L E S O F icsN.N. Gregory Gregory MMaanknkiiww InInththisiscchahaptpterer,,loolookkfoforrththeeansanswerswerstotoththeseseequesquesttionsions::§What iselasticity?
2、 What kindsof issuescanelasticityhelp usunderstand? §What istheprice elasticityof demand? Howisitrelated to thedemandcurve?Howisitrelated to revenue&expenditure?§What istheprice elasticityof supply? Howisitrelated to thesupplycurve?§What are theincome a
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6、asticity§Basicidea:Elasticitymeasureshowmuch one variable responds tochangesinanothervariable.§Onetypeof elasticitymeasureshowmuch demand foryourwebsiteswill fall ifyouraise yourprice. §Definition:Elasticityisa numerical measureofthe responsivenessofQ d
7、orQ sto oneofitsdeterminants.ELASTICITY AND ITS APPLICATION3PriceElasticityofDemandPrice elasticityPercentage change inQ d= of demand Percentage change inP§Price elasticityof demandmeasureshowmuchQ drespondsto achange inP.§Looselyspeaking,itmeasuresthep
8、rice sensitivityofbuyers’ demand.ELASTICITY AND ITS APPLICATION4PriceElasticityofDemandPrice elasticityPercentage change inQ d= of demand Percentage change inPP Example:Prises Price elasticityP2by 10%of demand P1equalsD 15%Q = 1
