ECON 103 Lecture 6: lecture6.doc
12 Sep 2014
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Let"s consider the demand for a good x in its functional form. Exx = -1 means elasticity is unit elastic. Many often drop the minus sign since the own price elasticity is always negative. Exx = 1 means elasticity is unit elastic. If p is a discrete number, then we have what is called an arc elasticity. If p is infinitely small, then we have a point elasticity. An arc elasticity is an average elasticity, and as such has a natural ambiguity. Again, we"ll use whatever is easiest in a given context. You"ll want to treat the slope of the demand curve as the same as elasticity don"t. Ave p = 7. 5, ave q = 15. Cookie monster"s demand for cookies is unit elastic. What if cm doesn"t spend all his income on cookies, but must eat 20 cookies/day? then demand is inelastic. Few substitutes + small share of budget. Many substitutes + large share of budget.
