MBAE-103: Managerial Economics – Unit 6
Objectives: understand the concept of elasticity; define various kinds of elasticities; and apply the various measures of elasticity to real world situations.
Materials:
The relevant material is available here.
Questions:
- What is the generic equation used to calculate a point elasticity of demand?
- Several years ago a mayor of a large city was faced with a rapidly rising rate of theft, mugging and armed robbery by persons addicted to drugs. Since those who needed drugs were unable to earn enough money to purchase sufficient amount of drugs they were turning to crime. The mayor said that he strongly intended to reduce drug-related crime-mugging theft etc. The policy he adopted to solve this problem was to crack down strongly on the drug traffic. He arrested the drug dealers and reduced the amount of drugs on the street; but the rate of crime increased instead of decreasing. What economic explanation can you offer for the failure of the mayor’s policy?