Elasticity of demandPrice elasticity of demand EPD - The percentage changed in quantity demanded resulting from 1% change in price... Elasticity of demandConclusion: Price elasticity of
Trang 1ELASTICITY
Trang 2 Elasticity of demand
Elasticity of supply
Trang 3Elasticity of demand*Price elasticity of demand (ED P )
*Income elasticity of demand (ED I )
*Cross elasticity of demand (ED Py )
Trang 4Elasticity of demand
Price elasticity of demand (EPD)
- The percentage changed in quantity demanded resulting from 1% change in price
Trang 5Elasticity of demand
Price elasticity of demand (E PD )
Point elasticity
E.g: Demand curve: P = 18 – 2Q and point A (P=6, Q=6)
What is price elasticity of demand at point A
P
P Q
Q
P P
Q
P '
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2 1
2 1
2 1
2 1
P P
P P
Q Q
Q Q
E P D
AB
+ − + −
=
Trang 7Elasticity of demand
Conclusion: Price elasticity of demand always:
Trang 8Elasticity of demand
Price elasticity of demand
(E P D)
• /E/ < 1: Inelastic demand
• - steep demand curve
- large change in price, small
change in quantity demanded
- Consumers are not very sensitive
to the change in price
- the goods is hard to replace
or necessity
P
Q
Trang 9Elasticity of demand
Price elasticity of demand (E P D)
• /E/ > 1: Elastic demand,
• - flat demand curve
- small change in price, large
change in quantity demanded
- Consumers are very sensitive
to the change in price
- the goods is easy to replace
P
Q
Trang 10Elasticity of demand
Price elasticity of demand (EPD)
• /E/ = 1: Unitary-elastic demand
• - slope down demand curve
- %change in price equal to %
change in quantity demanded
Trang 11Elasticity of demand
Price elasticity of demand (EPD)
• /E/ = 0: Perfectly Inelastic demand
• - Demand curve is parallel to the
vertical axis
- Change in price doesn’t affect
on quantity demanded
- Consumers are not sensitive
to the change in price
- The good is irreplaceable
P
Q
Trang 12P PPnPPPPPP PPP PPPPPPPPP PPnPPPPPP PP PPP PPPngP Pn PPPPP
P PPP gPPP PP Pn PPP PPPPPPP PPPPPPPPPPn PPPPPP
Trang 13Elasticity of demand
Price elasticity of demand (EPD)
• Factors effecting on E P D
Trang 14Elasticity of demand
Price elasticity of demand (EPD)
• The relationship between
EPD, P and TR
/E/<1: P ↓ TR ↓
O
Trang 15Elasticity of demand
Price elasticity of demand (EPD)
* The relationship between EPD, P and TR
/E/>1: TR ↑ when P↓
Trang 16TR
Trang 17∆
∆
=
Trang 18Q
P Y
Trang 19Elasticity of supply
Price elasticity of supply (EPS)
- The percentage changed in quantity supplied resulting from 1% change in price
Trang 20Elasticity of supply
E=0: Perfectly inelastic supply
E<1: Inelastic supply
E>1: Elastic supply
E=1: Unitary elastic supply
E=∞: Perfectly elastic supply
Trang 21Elasticity of supply
Factors affecting on elasticity of supply:
- Availability of inputs
Trang 221 If 10% increase in A’s price leads to 2% increase in total revenue, A is elastic – demand
2 Decrease in gasoline’s price makes the demand curve of motorbikes (D1) shift to the right to (D2) and this (D2) is more elastic than (D1) at any quantity level (in absolute value)
3 All points in a demand curve has the same value of slope and price elasticity of demand (point elasticity)
4 “Food” is less elastic demand than “Kinh Do soft cake”
5 Per-unit tax imposed on producer of good, which demand is more elastic than supply will makes that producer bear the smaller part in total tax amount in comparison with consumer’s part.