Chapter
18
The
Elasticities
of
Demand
and
Supply
Copyright
2002 by The McGraw­Hill Companies, Inc.
All rights reserved.
18­1
Chapter
Objectives
The
elasticity
of
demand
The
determinants
of
elasticity
Elasticity
and
total
revenue
The
elasticity
of
supply
Tax
incidence
Copyright
2002 by The McGraw­Hill Companies, Inc.
All rights reserved.
18­2
The
Elasticity
of
Demand
The elasticity of demand for a good or service
measures the change in quantity demanded in
response to a change in price
In other words, elasticity measures the sensitivity
(measured in percentage change) of quantity
demanded because of a change (percentage) in price
When price goes up,
demanded declines.
we
know that
quantity
But we don’t know by how much?
Elasticity
response
provides
us
a
way of
measuring
this
Elasticity answers the “how much” question
Copyright
2002 by The McGraw­Hill Companies, Inc.
All rights reserved.
18­3