Instruction: In this part you will produce a summary of an article related to economics and "Elasticity of Demand" In the summary: ? First, rewrite the article about the elasticity of demand in ur own wording, including any formula or examples. ? Then in one paragraph explain what was learned about "Elasticity of Demand" or what you thought it is. ? Solve the problem at the end of the article. ? You should type your summary in at least five hundred words including all the formulas.

ELASTICITY OF DEMAND The sensitivity of demand to changes in price varies with the product. For example, a change in the price of light bulbs may not affect the demand for light bulbs much, because people need light bulbs no matter what their price. However, a change in the price of a particular make of car may have a significant effect on the demand for that car, because people can switch to another make. We want to find a way to measure this sensitivity of demand to price changes. Our measure should work for products as diverse as light bulbs and cars. The prices of these two items are so different that it makes little sense to talk about absolute changes in price: Changing the price of light bulbs by $1 is a substantial change, whereas changing the price of a car by $1 is not. Instead, we use the percent change in price. How, for example, does a 1% increase in price affect the demand for the product? Let Ap denote the change in the price p of a product and 4q denote the corresponding change in quantity q demanded. The percent change in price is Ap/p and the percent change in quantity demanded is 4q/q. We assume that Ap and 4q have opposite signs (because increasing the price usually decreases the quantity demanded). Then the effect of a price change on demand is measured by the absolute value of the ratio. Percent change in demand = Percent change in price 19 Apl For small changes in p, we approximate am by the derivative da We define: The elasticity of demand for a product, E, is given approximately by E = AP / p , or exactly by E = 19 ap Increasing the price of an item by 1% causes a drop of approximately E% in the quantity of goods demanded. If E> 1, Then a 1% increase in price causes the demand to drop more than 1%, and the demand is elastic If O S E 1, demand is elastic, and revenue is increased by lowering the price. E = 1 occurs at critical points of the revenue function. Solve: After writing your summary use what you have learned to answer the following. 1. There is only one company offering internet service in a town. Would you expect the elasticity of demand for internet service to be high or low? Explain