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 Lesson 11: Elasticity Basics | Unit 3: Measurement Page: 13 of 25

 Topic: Doing The Numbers: Endpoint <=PAGE BACK | PAGE NEXT=>

• Our task is to calculated the price elasticity of demand using the endpoint formula. I am presenting the endpoint formula for reference.

 endpointelasticity = (Q2 - Q1)Q1 ÷ (P2 - P1)P1

• Suppose the values for this formula are P1 = \$2.49, Q1 = 5,447 unit of a given good (say Tacos), P2 = \$1.99, Q2 = 6,608 units of Tacos

 endpointelasticity = 0.21 ÷ - 0.20 = - 1.05

• This value - 1.05 indicates that the a one percent decline in the price of Tacos results in a 1.05 percent increase in quantity demanded.

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ALLOCATION EFFECT

A change in the allocation of resources caused by placing taxes on economic activity. By creating disincentives to produce, consume, or exchange, taxes generally alter resource allocations. The allocation effect is typically used when governments seek to discourage the production, consumption, or exchange of particular goods or activities that are deemed undesirable (such as tobacco use or pollution). This is one of two effects of taxation. The other (primary) is the revenue effect, which is the generation of revenue used to finance government operations.

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 Francis Bacon (1561-1626), a champion of the scientific method, died when he caught a severe cold while attempting to preserve a chicken by filling it with snow.
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 SPESubgame Perfect Equilibrium
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