Bài giảng Managerial Economics - Chapter 06: Elasticity and Demand

Chapter 6: Elasticity and DemandMcGraw-Hill/IrwinCopyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.ElasticityPrice Elasticity of Demand (E)P & Q are inversely related by the law of demand so E is always negativeThe larger the absolute value of E, the more sensitive buyers are to a change in priceMeasures responsiveness or sensitivity of consumers to changes in the price of a goodSign of Price Elasticity of DemandThe coefficient of the price elasticity of demand is always negativeIt is intuitively more appealing to talk about price elasticity in terms of its absolute value.6-4ElasticityResponsivenessEElasticUnitary ElasticInelasticTable 6.1Price Elasticity of Demand (E)%∆Q> %∆P %∆Q= %∆P %∆Q 1E= 1E %∆P %∆Q= %∆P %∆Q 0, B 0MR = 0MR 1)TR decreases as Q increases (P decreases)TR is maximizedTR increases as Q increases (P decreases)Unit Elastic (│E│= 1)Inelastic (│E│< 1)Marginal Revenue & Price ElasticityFor all demand & marginal revenue curves, the relation between marginal revenue, price, & elasticity can be expressed asProof6-356-36Marginal Revenue & Price ElasticityNote that as E - that MRPIncome ElasticityIncome elasticity (EM) measures the responsiveness of quantity demanded to changes in income, holding the price of the good & all other demand determinants constantPositive for a normal goodNegative for an inferior goodNormal Good6-38Inferior Good6-39Cross-Price ElasticityCross-price elasticity (EXR) measures the responsiveness of quantity demanded of good X to changes in the price of related good R, holding the price of good X & all other demand determinants for good X constantPositive when the two goods are substitutesNegative when the two goods are complementsSubstitute Good6-41Interval Elasticity MeasuresTo calculate interval measures of income & cross-price elasticities, the following formulas can be employedPoint Elasticity MeasuresFor the linear demand function Q = a + bP + cM + dPR, point measures of income & cross-price elasticities can be calculated as6-446-45