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CH-4 - Differenciation - Lecture 2

This document is a chapter about differentiation and elasticity. It will teach the reader how to calculate price elasticity along an arc and at a point, and how to determine whether demand is inelastic, unit elastic, or elastic. It will also cover using derivatives to find elasticity, calculating elasticity for linear demand functions, the elasticity of supply, and an example of calculating the price elasticity of supply.

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Hedi Riahi
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26 views

CH-4 - Differenciation - Lecture 2

This document is a chapter about differentiation and elasticity. It will teach the reader how to calculate price elasticity along an arc and at a point, and how to determine whether demand is inelastic, unit elastic, or elastic. It will also cover using derivatives to find elasticity, calculating elasticity for linear demand functions, the elasticity of supply, and an example of calculating the price elasticity of supply.

Uploaded by

Hedi Riahi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Chapter 4.

Di¤erentiation

Elasticity
GBS

...

M.M. Ben Jemaa (GBS) Elasticity ... 1 / 10


The derivative of a function

At the end of this section you should be able to:


Calculate price elasticity averaged along an arc.

M.M. Ben Jemaa (GBS) Elasticity ... 2 / 10


The derivative of a function

At the end of this section you should be able to:


Calculate price elasticity averaged along an arc.
Calculate price elasticity evaluated at a point.

M.M. Ben Jemaa (GBS) Elasticity ... 2 / 10


The derivative of a function

At the end of this section you should be able to:


Calculate price elasticity averaged along an arc.
Calculate price elasticity evaluated at a point.
Decide whether supply and demand are inelastic, unit elastic or elastic.

M.M. Ben Jemaa (GBS) Elasticity ... 2 / 10


The derivative of a function

At the end of this section you should be able to:


Calculate price elasticity averaged along an arc.
Calculate price elasticity evaluated at a point.
Decide whether supply and demand are inelastic, unit elastic or elastic.
Understand the relationship between price elasticity of demand and
revenue.

M.M. Ben Jemaa (GBS) Elasticity ... 2 / 10


The derivative of a function

At the end of this section you should be able to:


Calculate price elasticity averaged along an arc.
Calculate price elasticity evaluated at a point.
Decide whether supply and demand are inelastic, unit elastic or elastic.
Understand the relationship between price elasticity of demand and
revenue.
Determine the price elasticity for general linear demand functions.

M.M. Ben Jemaa (GBS) Elasticity ... 2 / 10


We quantify the responsiveness of demand to price change by de…ning the
price elasticity of demand to be:

M.M. Ben Jemaa (GBS) Elasticity ... 3 / 10


Di¤erentiation and Elasticity
Elasticity of demand

Rather than calculating the elasticity from the variation into two points we
can use derivative:

Example
Given the demand function
P = 50 2Q
…nd the elasticity when the price is 30. Is demand inelastic, unit elastic or
elastic at this price?

M.M. Ben Jemaa (GBS) Elasticity ... 4 / 10


Solution
The reciprocal function to express Q function of P is
Q = 25 1/2P
dQ 1
dP = 2
We are given that P = 30 so, at this price, demand is
Q = 25 1/2(30) = 10
P dQ 30
E = Q dP = 10 ( 12 ) = 1.5 > 1
demand is elastic at this price.

M.M. Ben Jemaa (GBS) Elasticity ... 5 / 10


Di¤erentiation and Elasticity
price elasticity of supply

The formula for point elasticity is


P dQ
E =
Q dP

Problem
Given the supply function P = 10 + Q
…nd the price elasticity of supply
(a) averaged along an arc between Q = 100 and Q = 105
(b) at the point Q = 100

M.M. Ben Jemaa (GBS) Elasticity ... 6 / 10


Solution

(b)

M.M. Ben Jemaa (GBS) Elasticity ... 7 / 10


M.M. Ben Jemaa (GBS) Elasticity ... 8 / 10
M.M. Ben Jemaa (GBS) Elasticity ... 9 / 10
M.M. Ben Jemaa (GBS) Elasticity ... 10 / 10

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