Lecture Introduction to economics: Social issues and economic thinking: Chapter 5 - Wendy A. Stock

Chapter 5 - ELasticity. After completing this unit, you should be able to: Define elasticity, classify elasticity values into inelastic and elastic categories, use the elasticity coefficient to assess the price elasticity of demand,…

Trang 1

Introduction to Economics: Social Issues and Economic Thinking

Wendy A Stock

PowerPoint Prepared by

Z Pan

Chapter 5

Elasticity

Trang 2

Ø Define elasticity

Ø Classify elasticity values into

inelastic and elastic categories

Ø Use the elasticity coefficient to

assess the price elasticity of

demand

Ø Assess the relationship between elasticity and total revenue

Ø Describe the factors that determine the price elasticity

of demand

After studying this chapter, you should be

able to:

Trang 3

Ø Elasticity is a measure of responsiveness

between any two variables

Ø The Price Elasticity of Demand measures the responsiveness of quantity demanded to

changes in price, all expressed in percentage terms

& Sons, Inc.

3

WHAT IS ELASTICITY?

Trang 4

Ø Elastic Demand: When a given percent change in

the price of a good causes a larger percent change

in the quantity demanded of the good.

Ø Inelastic Demand: When a given percent change in the price of a good causes a smaller percent change

in the quantity demanded of the good.

in the price of a good causes an equal size percent change in the quantity demanded.

CATEGORIES OF ELASTICITY

Trang 5

Perfectly Inelastic Demand: Quantity demanded does not change in response to a price change

& Sons, Inc.

5

Trang 6

Perfectly Elastic Demand: Quantity demanded

changes by an infinite amount in response to a price change

Trang 7

& Sons, Inc.

7

THE ELASTICITY COEFFICIENT

Trang 8

Summary of Elasticity Coefficient Values

Trang 9

Ø Total Revenue (TR) is the amount of money

earned when a supplier sells a given quantity of

a good

TR = $50/shirt x 20 shirts/day = $100/day

TR = P * Q

& Sons, Inc.

9

Elasticity and Total Revenue

If P , but Q

TR ? Depending on Ed

Trang 10

If demand is elastic, the percentage change in

quantity demanded is greater than the percentage change in price

Elastic;

Ed >1; (Ed = %ΔQ / %ΔP)

%ΔQ >%ΔP;

P↑ TR → ↓

Trang 11

& Sons, Inc.

11

If demand is inelastic, the percentage change in quantity demanded is less than the percentage

change in price

Inelastic;

Ed < 1; (Ed = %ΔQ / %ΔP)

%ΔQ < %ΔP;

P↓ TR → ↓ P↑ TR → ↑

Trang 12

Trang 13

Ø The Availability of Substitutes

Ø Luxury versus Necessity Goods

Ø The Length of Time Available to Adjust to a

Price Change

Ø The Portion of Income Spent on the Good

& Sons, Inc.

13

DETERMINANTS OF THE PRICE

ELASTICITY OF DEMAND

Trang 14

Ø The Availability of Substitutes

The more substitutes available, the more elastic is the demand for a good

Trang 15

Ø Luxury versus Necessity Goods

Demand for luxuries is more elastic than demand for necessity goods

& Sons, Inc.

15

Trang 16

Ø The Length of Time Available to Adjust to a Price Change

The longer the time passes since the price

change, the easier to make adjustment to price

change, thus the more elastic is demand

Trang 17

Ø The Portion of Income Spent on the Good

The price elasticity of demand tends to be larger for goods that make up a larger portion of

people’s incomes

& Sons, Inc.

17

Trang 18

1 If the demand for milk is inelastic, will a

small reduction in the supply of milk result

in an increase or a decrease in the total revenue earned by milk suppliers? Why?

Trang 19

& Sons, Inc.

19

Key Concepts

• Elasticity

• Price Elasticity of Demand

• Elastic demand

• Inelastic demand

• Perfectly inelastic demand

• Perfectly elastic demand

• Unit elastic of demand

• Elasticity coefficient

• Total revenue

Định dạng
Số trang	19
Dung lượng	380,32 KB