Elasticity of demand microeconomics

Lecture 4
Wi iness to pay is individual- paradox of value

Elasticity
• sensitivity Percent!
• Demand
◦price of the product (Ed) 80 100 2 20

◦Income (Ei) a
◦Price on other products (Exy) 251
80 100
Always what's changing is the price, then you get an e ect
20

Price elasticity of demand
• Demand consumers
Price sensitivity ?
• Sensitivity rel. price or product
if aim - increase market (Q)
- change price
-If price decrease - by how much?
Def. How much percent change in Q demanded do
I get for 1% change in price. Low price sensitivity High price sensitivity
If price increases Qd decreases Prob. Necessary Not necessary
If prices decreases Qd increases


% change in Qd
Example:
Q 225 22,5P Po 20 P2 8
Ed= Effect
Qo 100 Qs 225
% change in P Cause


Ed=
Q1 - Q0
Q0
E
21,1 8 1.25
P1 - P0 Interpretive: if price by 1% -> Qd by 1,25%
P0
Always Ed < 0 because of the curve of demand.
Ed has no unit because Ed is a relation!

Value of Ed
• degree of substitutes
• Share of income
• Time

Think away about the - sign
The higher the number ' the higher the sensitivity
Low price sensitivity Ed < 1
High price sensitivity Ed > 1


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