DEMAND ELASTICITY - Luiscabral.net

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Example: gasoline demand• From 1953 to 2004, p, y, c and n increased at the followingannual rates: 3.9, 2.2, 2.0, 1.2%. How much do you expectdemand to have grown?• Recall that d zz∆ qqd x= ɛ zx x, for any z and x. Hence,= −.03 × 3.9% + 1.17 × 2.2% − 0.33 × 2 + .85 × 1.2%= −.117% + 2.574% − 0.66% + 1.02%= 2.817%• Note: actual growth rate was 2.7%.
Takeaways• The elasticity (of demand) measures sensitivity of buyers tochanges in price.• It’s useful for computing impact of price changes on quantity andrevenue.• Cross-price and income elasticities measure sensitivity to otherfactors.
Page 4 and 5: Demand elasticity: definitionɛ≡d
Page 6 and 7: Demand elasticity: definitionɛ≡d
Page 8 and 9: ExamplesProductElasticityMilk -0.5C
Page 10 and 11: Elasticity illustrated: constant el
Page 12 and 13: Elasticity, price, and revenueExamp
Page 14 and 15: Cross-price elasticity• Idea: How
Page 16 and 17: Example: U.S. gasoline demand (cont

DEMAND ELASTICITY - Luiscabral.net

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