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η
Arc Elasticity PercentChangeinQuantity
η=
50 PercentChangein Pr ice
20
18
“eta”
60 64 100
Lectures in Microeconomics-Charles W. Upton
Q Arc Elasticity
Q1 − Qo Q1 − Qo
50 ( )(Q1 + Qo ) 1
50 ( )(Q1 + Qo ) 1
η= 2
η= 2
20 P1 − Po 20 P1 − Po
18 18
( 12 )( P1 + Po ) ( 12 )( P1 + Po )
60 64 100 60 64 100
Q Arc Elasticity
Q Arc Elasticity
1
The Formula The Formula
P P
Q1 − Qo Q1 − Qo
50 ( )(Q1 + Qo )1
50 ( 1 )(Q + Qo )
η= 2
η= 2 1
20 P1 − Po 20 P1 − Po
18 ( 12 )( P1 + Po ) 18
( 12 )( P1 + Po )
60 64 100 60 64 100
Q Arc Elasticity
Q Arc Elasticity
Q1 − Qo
Compute the arc
50 ( 1 )(Q + Qo ) 50 elasticity when P
η= 2 1 changes from 20 to 18
20 P1 − Po 20
18 18
( 2 )( P1 + Po )
1
60 64 100 60 64 100
Q Arc Elasticity
Q Arc Elasticity
An Example An Example
P P
60 − 64 60 − 64
( 1 )(60 + 64) 4 ( 12 )(60 + 64)
η= 2 − η =
50 20 − 18 50 62 20 − 18
η =
20 ( 12 )( 20 + 18) 20 2 ( 12 )( 20 + 18)
18 18 19
60 64 100 60 64 100
Q Arc Elasticity
Q Arc Elasticity
2
An Example Reverse the Calculation
P P
60 − 64
4 ( )(60 + 64)
1
Compute the arc
− η= 2
50 62 20 − 18 50 elasticity when P
η = changes from 18 to 20
20 2 ( 2 )( 20 + 18)
1
20
18 19 18
η = -0.6129
60 64 100 60 64 100
Q Arc Elasticity
Q Arc Elasticity
60 64 100 60 64 100
Q Arc Elasticity
Q Arc Elasticity
3
Arc Elasticity and Tables Arc Elasticity and Tables
• 15,000 units were • 15,000 units were
demanded when the Q1 − Qo demanded when the
Q1 − Qo
( 12 )(Q1 + Qo )
price was $5.
( 1 )(Q + Qo ) price was $5. η=
P1 − Po
• 12,000 units were η= 2 1 • 12,000 units were
demanded when the P1 − Po demanded when the ( 12 )( P1 + Po )
price was $7. price was $7. − 3000
• Compute the ( 2 )( P1 + Po )
1
• Compute the 13,500
elasticity elasticity η=
2
Arc Elasticity Arc Elasticity 6
η=
demanded when the
price was $7.
( 12 )( P1 + Po )
η=
demanded when the
price was $7.
( 12 )( P1 + Po )
3
• Compute the
η=
− 3000
13,500 3
• Compute the Note that we never
− 3000
13,500said
η =came first.
elasticity elasticity which price
2 2
Arc Elasticity 6 Arc Elasticity 6
4
Which method is best? Extensions to other Elasticities
• The concept of elasticity is defined without • Income elasticities (measuring the
reference In
to any one we
general method of use
tend to calculation. responsiveness of demand with respect to
• There are point
occasions when the
elasticities point
in class, changes in income).
elasticity formula
becauseis best and there
we have the are
occasions luxury
when the arc elasticity
of examples withformula is
best. nice demand curves.
End
©2004 Charles
W. Upton
Arc Elasticity