HUTECH Institute of International Education REVISION Movie tickets and DVDs are substitutes If the price of DVDs increases, what will happen in the market for movie tickets? The supply curve shifts[.]
Trang 1Movie tickets and DVDs are substitutes If the price of DVDs increases, what will happen in the market for movie tickets?
The supply curve shifts to the left
The supply curve shifts to the right
The demand curve shifts to the left
The demand curve shifts to the right
Trang 2TOPIC 3
3.3
3.1
3.2
THE ELASTICITY OF DEMAND
THE ELASTICITY OF SUPPLY
APPLICATIONS OF SUPPLY, DEMAND & ELASTICITY
ELASTICITY OF SUPPLY AND DEMAND
Trang 3▪ Definition:
Elasticity is a measure of the responsiveness
of quantity demanded or quantity supplied to
a change in one of its determinants
Eg: how much demand for your shoes will fall
if you raise your price
Trang 4PRICE ELASTICITY OF DEMAND
3.1
▪ Price elasticity of demand measure how
much QD of a good respond to 1% change
in price of that good
▪ E DP is usually a negative number
→ Use absolute value (drop the minus sign)
Price elasticity
of demand =
Percentage change in Q D Percentage change in P
Trang 5PRICE ELASTICITY OF DEMAND
Price elasticity
of demand equals
P
Q
D
Q2
P2
P1
Q1
P rises
by 10%
Q falls
by 20%
20%
10% = 2
Example:
→ Reflecting that the change
in the quantity demanded is
proportionately twice as large
as the change in the price
Trang 6PRICE ELASTICITY OF DEMAND
WHY DIFFERENCE?
Example:
Calculate the price elasticity of demand between 2
points,
Point A: P = $4, Q = 120
Point B: P = $6, Q = 80
Answer:
Going from point A to point B, E DP = 0.66
Going from point B to point A, E DP = 1.5
Trang 7] )/
P )/[(P
P (P
] )/
Q )/[(Q
Q
(Q
2
2
1 2
1 2
1 2
1
2
+
−
+
−
=
] )/
)/[(
(
] /
)/[(
(
2 4
6 4
6
2 )
120 80
120
80
+
−
+
−
=
E.g
= 1
Trang 8% change =
E.g
= 40%
end value – start value
6 – 4
5 x 100%
% change in P =
Trang 9Variety of Demand Curve
▪ Economists classify demand curves according
to their elasticity
▪ Five different classifications of D curves:
• Perfectly inelastic demand
• Inelastic demand
• Unit elastic demand
• Elastic demand
• Perfectly elastic demand
Trang 10P1
D
“Perfectly inelastic demand”
P
Q
P2
P falls
by 10%
Q changes
Consumers’
price sensitivity:
D curve:
Elasticity:
vertical
none
0
Variety of Demand Curve