Chapter 4. Elasticity


 Justina Tate
 9 months ago
 Views:
Transcription
1 Chapter 4 Elasticity
2 comparative static exercises in the supply and demand model give us the direction of changes in equilibrium prices and quantities sometimes we want to know more we want to know about the magnitudes of these changes ie. how much of a market adjustment to a new equilibrium comes through price adjustment and how much comes through quantity adjustment? when only one of the curves shifts the move to a new equilibrium is a movement along either the D curve or the S curve so we start off by looking at measures of relative responsiveness of price and quantity along either D or S
3 rice Elasticity of Demand (η in your text we will use E D ) demand is said to be: elastic when quantity demanded is very responsive to changes in the product s price inelastic when quantity demanded is unresponsive to changes in its price Figure 41 same decrease in supply leads to very different changes in price and quantity elasticity is related to the slope of the demand curve, but it is not exactly the same
4
5 The Measurement of rice Elasticity E D = percentage change in quantity demanded percentage change in price E D = % D % E D = ΔD/D Δ/ why do we include the minus sign in the formula for E D (or take the absolute value of the measure)? since demand curves have negative slopes, price and quantity demanded move in opposite directions along the demand curve the changes in price and quantity have opposite signs, so demand elasticity would return a negative number would lead to confusion when speaking about higher or lower elasticity convert the measure to a positive number
6 another important point to consider since we are dealing in percentage changes, elasticity relates the absolute change in and to some base levels of and. seems simple but raises an important issue consider the two points A and B in the diagram below. A A B B D A B if we use the starting points for any move as our base levels we get contradictory measures of elasticity over the same segment of the demand curve depending on which direction we are going.
7 EXAMLE: Suppose A = 100, A = 25 and =50, = B BB 75. Elasticity (A B) using A as the base: Elasticity (B A) using B as the base:
8 Average Arc (or midpoint) Method to avoid this problem we use average values of and when computing the percentage changes referred to as the average arc or midpoint method because we are using the average or midpoint in calculating the percentages in general, the formula for elasticity is given by: B A B A B A B A D B A B A B A B A B A B A B A B A D E E + + = + + = + + = ) ( ) ( ) ( ) ( ) ( ) ( EXAMLE: Using the values from above we obtain:
9 oint Method if you have a linear equation and wish to calculate elasticity at a certain point E E D D Δ base = Δ base run = rise 1 = slope base and are the point you are interested in EXAMLE: in our example, if demand was linear, its equation would be: = 125 or = 125 so the slope (rise/run) = 1 calculating the elasticity at our previous midpoint ( = 50, = 75):
10 Calculus Method if you have a specific demand function (linear or not) and wish to calculate elasticity at a certain point d E D = d or if you have a demand function with many independent variables E D = Summing Up you can always use the average arc method to calculate elasticity if you only have two points just apply formula if you have an equation pick points above and below the point you are interested in (such that the averages are the point you are interested in and apply the formula
11 Range of Values for E D Inelastic: 0 < E D < 1 if the percentage change in quantity demanded is less than the percentage change in price, then demand is inelastic Unit Elastic: E D = 1 if the percentage change in quantity demanded is equal to the percentage change in price, then demand is unit elastic Elastic: E D > 1 if the percentage change in quantity demanded is greater than the percentage change in price, then demand is elastic
12 What Determines the Elasticity of Demand? Demand is elastic when the product has close substitutes Demand is inelastic when the product has no close substitutes the availability of substitutes hinges on several factors: The longer the time interval considered, the more elastic is demand. The less a good is a necessity, the more elastic is demand The more specifically a good is defined, the more elastic is its demand
13 rice Elasticity of Demand E D E D = % D (expressed as a positive number) % Special Cases: Constant E D Demand Curves: D1 b D2 D3 a
14 D 1 : D = a (where a > 0 is some constant) D 2 : = b (where b > 0 is some constant) D 3 : D = k/ (where k > 0 is some constant)
15 Downward Sloping Linear Demand Curves: D = c d (where c, d > 0 are constants) = c d 1 d D Δ E D = = ( d) = d Δ c/d midpoint D c
16 Intuition behind this result: as we have discussed, demand is more elastic for goods with available substitutes people tend to substitute from highprice goods to lowprice goods when they can consumers have more opportunities to substitute towards lower price goods when the price of the good is high as the price of a good falls, the number of similar goods that have lower prices falls
17 Elasticity and Total Expenditure Total Expenditure by Consumers (TE) = Total Revenues going to Firms (TR) = E D < 1 % < % price effect dominates in total revenue E D > 1 % > % quantity effect dominates in total revenue E D = 1 % = % effects offset so total revenue is unchanged
18 Back to E D = 1 Everywhere: if E D = 1 then total revenue is constant along the demand curve so = k (where k is some constant), or: D = k/ (a rectangular hyperbola) D3
19 Back to Downward Sloping Linear Demand: c/d midpoint D c TR =
20 rice Elasticity of Supply: (η S in your text we will use E S ) E S = percentage change in quantity supplied percentage change in price or E S = % S % or E D = ΔS/S Δ/ since supply curves have positive slopes, price and quantity demanded move in the same direction along the supply curve no need to turn it into a positive number calculate in the same way as E D only along the supply curve  i.e. use the average arc (midpoint) method or if you have an equation, use the point method
21 Determinants of Elasticity of Supply the elasticity of supply depends on how easy it is for producers to switch between the production of different products this depends on: $the technical ease of substitution in production $the nature of production costs clearly again we would expect a difference in $short run versus long run in the short run existing firms can hire more of only some inputs to increase production in the long run can expand their use of all factors (new plant, etc.) also in the long run, higher prices may bring entry
22 SSR SLR Range of Values for E S Inelastic: 0 < E S < 1 if the percentage change in quantity supplied is less than the percentage change in price, then supply is inelastic Elastic: E S > 1 if the percentage change in quantity supplied is greater than the percentage change in price, then supply is elastic
23 Special Cases: S1 b S2 a S 1 : S = a (where a > 0 is some constant) S 2 : = b (where b > 0 is some constant)
24 Other Demand Elasticities: the following elasticities are associated with changes in variables other than the price of the good in question therefore we are dealing with shifts of the demand curve rather than movements along it D D
25 Income Elasticity of Demand (η Y in your text we will use E I ) E I = percentage change in quantity demanded percentage change in income or E D = % D % I Range of Values for E I E I < 0 inferior goods E I > 0 normal goods 0 < E I < 1 incomeinelastic normal goods E I > 1 incomeelastic normal goods
26 Cross rice Elasticity of Demand (η XY in your text we will use E XY ) E XY = % change in quantity demanded of good X % change in price of good Y Range of Values for E XY E XY < 0 complements E XY > 0 substitutes E XY = 0 unrelated goods
27 Important Example Where Elasticity Matters Tax Incidence Who bears the burden of a tax? Short Answer: doesn t matter who the government says owes the tax, or is responsible for collecting the tax on a transaction GST vs sales tax on private used car sales what matters is how the tax affects the market and its participants How much more do buyers pay because of the tax? How much less do sellers receive because of the tax?
28 Basic Analytics: suppose the government levies (institutes) a tax of $t per unit on sales of a good puts a wedge between what consumers pay and what sellers ultimately receive sellers pay the gov t $t for every unit they sell there are now 3 prices to consider * beforetax consumer and producer price T aftertax consumer price T t aftertax producer price what is the effect of the tax on sellers? since sellers must give the gov t $t per unit sold, then they must receive $t more from consumers to be willing to provide the same quantity as before the tax this is true for any quantity supply curve shifts up by t (the other way to think about this is that for any given price paid by consumers, since sellers keep less of it, they are willing to supply fewer units)
29 S * D * Consumers pay roducers pay on a per unit basis Total burden on a per unit basis? key insight is that the burden is shared between buyers and sellers Upon what does this tax burden sharing depend?
30 Taxes and E D : the more elastic is demand, the less of the burden is borne by consumers therefore the more of the burden is borne by producers t ST S * DE DI * intuition is that, with an elastic demand, sellers are less able to pass on the burden to buyers in the form of higher prices
31 But E S Matters Too: we will show this by considering the special cases of supply elasticity E S = perfectly elastic supply curve * t ST S D * Consumers pay: roducers pay: intuition is that, with perfectly elastic supply, sellers cannot be forced to bear any of the burden
32 E S = 0 perfectly inelastic supply curve S = ST * D * roducers pay: Consumers pay: intuition is that, with perfectly inelastic supply, sellers cannot avoid any of the burden
Chapter 6 Elasticity
Goldwasser AP Microeconomics Chapter 6 Elasticity BEFORE YOU READ THE CHAPTER Summary This chapter develops the concept of elasticity, which provides a numerical measure of the responsiveness of quantity
More informationElasticity. I. What is Elasticity?
Elasticity I. What is Elasticity? The purpose of this section is to develop some general rules about elasticity, which may them be applied to the four different specific types of elasticity discussed in
More informationELASTICITY AND ITS APPLICATION
5 ELASTICITY AND ITS APPLICATION CHAPTER OUTLINE: I. The Elasticity of Demand A. Definition of elasticity: a measure of the responsiveness of quantity demanded or quantity supplied to one of its determinants.
More informationElasticity and Its Application
Elasticity and Its Application Chapter 5 All rights reserved. Copyright 2001 by Harcourt, Inc. Requests for permission to make copies of any part of the work should be mailed to: Permissions Department,
More informationElasticity. This will always be a negative number; we take the absolute value. Larger numbers (in absolute value) mean the demand is more elastic.
Elasticity Elasticity is the term economists use to measure the responsiveness of one variable to changes in another. We can measure the responsiveness of quantity demanded to changes in price, income,
More information2011 Pearson Education. Elasticities of Demand and Supply: Today add elasticity and slope, cross elasticities
2011 Pearson Education Elasticities of Demand and Supply: Today add elasticity and slope, cross elasticities What Determines Elasticity? Influences on the price elasticity of demand fall into two categories:
More informationElasticity. Ratio of Percentage Changes. Elasticity and Its Application. Price Elasticity of Demand. Price Elasticity of Demand. Elasticity...
Elasticity and Its Application Chapter 5 All rights reserved. Copyright 21 by Harcourt, Inc. Requests for permission to make copies of any part of the work should be mailed to: Permissions Department,
More informationTHE ELASTICITY OF DEMAND
In this chapter, look for the answers to these questions: What is elasticity? What kinds of issues can elasticity help us understand? What is the price elasticity of demand? How is it related to the demand
More informationEC130 FOUNDATIONS OF ECONOMIC ANALYSIS
EC130 FOUNDATIONS OF ECONOMIC ANALYSIS 20042005 DEARTMENT OF ECONOMICS UNIVERSITY OF WARWICK Topic 2 Market equilibrium Stability revisited Elasticity Tax Tax incidence Tax incidence and elasticity 1
More informationChapter 20 Elasticity
Chapter 20 Elasticity How responsive are consumers to a change in price? Recall law of demand: As P increases, QD decreases. But how much does QD decrease? The answer to this question gives us elasticity
More informationMFP SET. Lecture 3 Surplus: Consumer & producer Elasticity & its applications MFP SET 2000 1
MFP SET Lecture 3 Surplus: Consumer & producer Elasticity & its applications MFP SET 1 Consumer surplus! Willingness to pay: the maximum amount that a consumer will pay for a good! Consumer surplus: the
More informationChapter 4: Elasticity. McTaggart, Findlay, Parkin: Microeconomics 2007 Pearson Education Australia
Chapter 4: Elasticity Objectives After studying this chapter, you will be able to: Define, calculate, and explain the factors that influence the price elasticity of demand Define, calculate, and explain
More informationCh. 6 Lecture Notes I. Price Elasticity of Demand 4. CONSIDER THIS A Bit of a Stretch
Ch. 6 Lecture Notes I. Price Elasticity of Demand A. Law of demand tells us that consumers will respond to a price decrease by buying more of a product (other things remaining constant), but it does not
More informationElasticity and Its Application
Elasticity and Its Application Chapter 5 Elasticity... is a measure of how much buyers and sellers respond to changes in market conditions allows us to analyze supply and demand with greater precision.
More informationAP Microeconomics Chapter 4 Outline
I. Introduction A. Learning Objectives In this chapter students should learn: 1. What price elasticity of demand is and how it can be applied. 2. The usefulness of the total revenue test for price elasticity
More informationSUPPLY AND DEMAND : HOW MARKETS WORK
SUPPLY AND DEMAND : HOW MARKETS WORK Chapter 4 : The Market Forces of and and demand are the two words that economists use most often. and demand are the forces that make market economies work. Modern
More informationd d Calculating Price Elasticity of Demand: The Midpoint or Arc Method
Microeconomics Topic 5: Discuss factors that determine demand and supply elasticity. Explain how demand and supply elasticity affect tax policy and the consequences of business decisions. Reference: Gregory
More informationPROBLEM SET#3 PART I: MULTIPLE CHOICE
1 PROBLEM SET#3 PART I: MULTIPLE CHOICE 1. In general, elasticity is a measure of a. the extent to which advances in technology are adopted by producers. b. the extent to which a market is competitive.
More informationElasticity: The Responsiveness of Demand and Supply
Chapter 6 Elasticity: The Responsiveness of Demand and Supply Chapter Outline 61 LEARNING OBJECTIVE 61 The Price Elasticity of Demand and Its Measurement Learning Objective 1 Define the price elasticity
More informationChapter 6. Elasticity: The Responsiveness of Demand and Supply
Chapter 6. Elasticity: The Responsiveness of Demand and Supply Instructor: JINKOOK LEE Department of Economics / Texas A&M University ECON 202 504 Principles of Microeconomics Elasticity Demand curve:
More informationElasticity of Demand and Supply
Elasticity of Demand and Supply Price Elasticity of Demand (Ep) Calculating Percentage Change Significance of Price Elasticity of Demand (Ep) Determinants of Price Elasticity of Demand (Ep) For Next Time
More informationElasticity. Definition of the Price Elasticity of Demand: Formula for Elasticity: Types of Elasticity:
Elasticity efinition of the Elasticity of emand: The law of demand states that the quantity demanded of a good will vary inversely with the price of the good during a given time period, but it does not
More information2007 Thomson SouthWestern
Elasticity... allows us to analyze supply and demand with greater precision. is a measure of how much buyers and sellers respond to changes in market conditions THE ELASTICITY OF DEMAND The price elasticity
More informationINTRODUCTORY MICROECONOMICS Instructor: Filip Vesely 12
INTRODUCTORY MICROECONOMICS Instructor: Filip Vesely 12 MIDTERM EXAM will be on March 29 Everything you earn and many things you buy are taxed. Who really pays these taxes? Tax Incidence is the division
More informationPrice Elasticity of Demand
04 Elasticity Price Elasticity of Demand Measures buyers responsiveness to price changes Elastic demand Sensitive to price changes Large change in quantity Inelastic demand Insensitive to price changes
More informationPrice Elasticity of Demand & Supply
13 10 Price Elasticity of Demand & Supply A. Price elasticity of demand Elastic demand (Ed > 1) % change in quantity demanded > % change in price Inelastic demand (Ed < 1) % change in quantity demanded
More informationa. Meaning: The amount (as a percentage of total) that quantity demanded changes as price changes. b. Factors that make demand more price elastic
Things to know about elasticity. 1. Price elasticity of demand a. Meaning: The amount (as a percentage of total) that quantity demanded changes as price changes. b. Factors that make demand more price
More informationTOPIC III: ELASTICITY AS A MEASUREMENT OF DEGREE OF RESPONSE
TOPIC III: ELASTICITY AS A MEASUREMENT OF DEGREE OF RESPONSE I. Price Elasticity of Demand A. A measurement of the degree of responsiveness of quantity demanded of good X to a change in P x B. E D = measured
More information2 Price Elasticity of Demand
1 1.1 Goals of this class Goals of this class Expand on supply and demand: how much do quantities change in responses to: changes in price? changes in income? changes in price of related goods? Learn implications
More informationElasticities of Demand and Supply
1 CHAPTER CHECKLIST Elasticities of Demand and Supply Chapter 5 1. Define, explain the factors that influence, and calculate the price elasticity of demand. 2. Define, explain the factors that influence,
More informationChapter 5 Elasticity of Demand and Supply. These slides supplement the textbook, but should not replace reading the textbook
Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook 1 What is total revenue? Price multiplied by the quantity sold at that price
More information10 : Theory of Demand
10 : Theory of Demand 1 Recap from last session Change in Demand Supply, Law of Supply Market Equilibrium Change in Equilibrium 2 A Shift in Both Supply and Demand Price of IceCream Cone Large increase
More informationUnit 5.4: Monopoly. Michael Malcolm. June 18, 2011
Unit 5.4: Monopoly Michael Malcolm June 18, 2011 1 Price Making A firm has a monopoly if it is the only seller of some good or service with no close substitutes. The key is that this firm has the power
More informationCHAPTER 4 Elasticity, Consumer Surplus, and Producer Surplus
Part Two: Microeconomics of Product Markets CHAPTER 4 Elasticity, Consumer Surplus, and Producer Surplus 2010 McGrawHill Ryerson Ltd. Slides prepared by Bruno Fullone, George Brown College 1 In this chapter
More informationPreTest Chapter 18 ed17
PreTest Chapter 18 ed17 Multiple Choice Questions 1. (Consider This) Elastic demand is analogous to a and inelastic demand to a. A. normal wrench; socket wrench B. Ace bandage; firm rubber tiedown C.
More informationRecitation #5 Week 02/08/2009 to 02/14/2009. Chapter 6  Elasticity
Recitation #5 Week 02/08/2009 to 02/14/2009 Chapter 6  Elasticity 1. This problem explores the midpoint method of calculating percentages and why this method is the preferred method when calculating price
More information1. The Price Elasticity of Demand
UNIVERSITY OF CALIFORNIA, LOS ANGELES Department of Economics Cameron Economics 1 Lecture 4 Last day, we pinned down what economists mean by competition in the context of markets. We then looked at demand
More informationMarket Definition, Elasticities and Surpluses
Sloan School of Management 15.010/15.011 Massachusetts Institute of Technology rofessors Berndt, Chapman, Doyle, and Stoker RECITATION NOTES #1 Market Definition, Elasticities and Surpluses Friday  September
More informationChapter 3; Consumer Behaviour, Demand and Elasticity
11 Chapter 3; Consumer Behaviour, Demand and Elasticity Learning Outcomes: Understand the relationship between consumer demand and output decisions Relate the concept of satisfaction and demand for consumer
More informationDefinition of. Elasticity. Elasticity. Why is elasticity an important and useful concept?
Elasticity by Geoffrey T Andron Rev 10806 Calculating impact of change in causal variables elasticities Use a table relating the causal to the affected variable. Use a graph of the same. Use a math
More informationPrice Elasticity of Demand
rice Elasticity of Demand Demand A B The percentage change in the quantity demanded given...... a one percent change in the price. rinciples of Microeconomics & rinciples of Macroeconomics: Ch. 5 First
More information5 Elasticity and its Application
Seventh Edition Principles of Macroeconomics N. Gregory Mankiw Wojciech Gerson (18311901) CHAPTER 5 Elasticity and its Application In this chapter, look for the answers to these questions What is elasticity?
More informationTo do today: S & D in algebra and introduction to elasticities
To do today: S & D in algebra and introduction to elasticities The math of S and D (linear curves) What is elasticity? Concept and calculation Determinants of elasticity 2011 Pearson Education Market Equilibrium:
More informationElasticity. Price elasticity of demand
lasticity Why cheap beer gives you gonorrhea, and other stories rice elasticity of demand The price elasticity of demand of a good measures the responsiveness of the quantity demanded of the good to changes
More informationElasticities of Demand
rice Elasticity of Demand 4.0 rinciples of Microeconomics, Fall 007 ChiaHui Chen September 0, 007 Lecture 3 Elasticities of Demand Elasticity. Elasticity measures how one variable responds to a change
More informationWeb Supplement to Chapter 2
Web upplement to Chapter 2 UPPLY AN EMAN: TAXE 21 Taxes upply and demand analysis is a very useful tool for analyzing the effects of various taxes In this Web supplement, we consider a constant tax per
More informationChapter 27: Taxation. 27.1: Introduction. 27.2: The Two Prices with a Tax. 27.2: The PreTax Position
Chapter 27: Taxation 27.1: Introduction We consider the effect of taxation on some good on the market for that good. We ask the questions: who pays the tax? what effect does it have on the equilibrium
More informationCHAPTER 3 ELASTICITY (DEMAND AND SUPPLY)
CHAPTER 3 ELASTICITY (DEMAND AND SUPPLY) Elasticity Elasticity is a measure of responsiveness or sensitivity of a dependant variable to a percentage change in an independent variable. Elasticity is a measure
More informationElasticity. Demand is inelastic if it does not respond much to price changes, and elastic if demand changes a lot when the price changes.
Elasticity The price elasticity of demand measures the sensitivity of the quantity demanded to changes in the price. Demand is inelastic if it does not respond much to price changes, and elastic if demand
More informationMeasuring Elasticity of Demand
C H A P T E R E I G H T P r i c e e l a s t i c i t y o f d e m a n d Measuring Elasticity of Demand Demand curves can have many different shapes and so it is important to derive a way to convey their
More informationQuantity Tax Incidence Subsidy Welfare Effects Case Study. Equilibrium Chapter 16
Equilibrium Chapter 16 Competitive Equilibrium: Motivating Questions Firms are pricetakers in competitive markets, but how is the market price (and quantity) determined? competitive equilibrium What happens
More information6. Which of the following is likely to be the price elasticity of demand for food? a. 5.2 b. 2.6 c. 1.8 d. 0.3
Exercise 2 Multiple Choice Questions. Choose the best answer. 1. If a change in the price of a good causes no change in total revenue a. the demand for the good must be elastic. b. the demand for the good
More informationLet us consider 2 points on a demand line/function, ( Q, P A A. Q, P ) =(1000,15). Then the formulae is just,
escribing emand and Supply Elasticities Objective: What is Elasticity of emand, how it is calculated and its usefulness. The relationship between slope, and elasticity. What is Income Elasticity of emand?
More informationText transcription of Chapter 5 Elasticity and Its Application
Text transcription of Chapter 5 Elasticity and Its Application Welcome to the Chapter 5 Lecture on Elasticity and Its Application. We are going to start the quantitative portion of the course in chapter
More informationIntroduction to Microeconomics. Elasticity
Introduction to Microeconomics ity Introduction In economic analysis and various business models we are always concerned with the effect one variable has on another. Understanding the impact one variable
More informationA scenario. Elasticity. Price Elasticity of Demand. Price Elasticity of Demand. Elasticity and its Application
5 Elasticity and its Application R I N C I L E O F ECONOMIC F O U R T H E I T I O N N. G R E G O R Y M A N K I W remium oweroint lides by Ron Cronovich 2008 update Modified by Joseph Taoyi Wang 2008 outhwestern,
More informationMicroeconomics Instructor Miller Practice Problems Labor Market
Microeconomics Instructor Miller Practice Problems Labor Market 1. What is a factor market? A) It is a market where financial instruments are traded. B) It is a market where stocks and bonds are traded.
More informationChapter 4 Elasticities of demand and supply. The price elasticity of demand
Chapter 4 Elasticities of demand and supply The price elasticity of demand measures the sensitivity of the quantity demanded of a good to a change in its price It is defined as: % change in quantity demanded
More informationEcon 2113 Test 2A Pledge: I have neither given nor received aid on this exam.
Econ 2113 Test 2A Dr. Rupp Spring 2011 Name: Pledge: I have neither given nor received aid on this exam. Signature: Multiple Choice Identify the choice that best completes the statement or answers the
More informationElasticity! Price, Income and Cross Elasticity
Elasticity! Price, Income and Cross Elasticity Elasticity the concept l The responsiveness of one variable to changes in another l When price rises what happens to quantity demanded? Demand falls BUT!
More informationCHAPTER 4 WORKING WITH SUPPLY AND DEMAND
CHAPTER 4 WORKING WITH SUPPLY AND DEMAND ANSWERS TO ONLINE REVIEW QUESTIONS 1. The rate of change along a demand curve measures how much one variable changes for every oneunit change in another variable.
More informationECON 2200, John Diggelman. Suppose a farmer has two different fields that can be used to grow either corn or wheat.
ECON 2200, John Diggelman Name: Problem Set #2 1. Production Possibilities Suppose a farmer has two different fields that can be used to grow either corn or wheat. a. Field A consists of 10 acres and each
More informationElasticity and Its Uses
CHAPTER 4 Elasticity and Its Uses CHAPTER OVERVIEW One of the most practical uses of economic analysis is to predict the effects of changes in underlying conditions or policies on the prices and production
More informationUnit 3. Elasticity. follows that.
Unit 3. Elasticity Quiz 1. If a 3 percent change in price leads to a 5 percent increase in the quantity supplied, A. supply is unit elastic B. the slope of the supply curve is less than one C. the slope
More informationAP Microeconomics Chapter 12 Outline
I. Learning Objectives In this chapter students will learn: A. The significance of resource pricing. B. How the marginal revenue productivity of a resource relates to a firm s demand for that resource.
More informationPractice Questions Week 3 Day 1
Practice Questions Week 3 Day 1 Figure 41 Quantity Demanded $ 2 18 3 $ 4 14 4 $ 6 10 5 $ 8 6 6 $10 2 8 Price Per Pair Quantity Supplied 1. Figure 41 shows the supply and demand for socks. If a price
More informationElasticity and Its Application
Elasticity and Its Application Scenario: You design websites for local businesses. You charge $200 per website and currently sell 12 websites per month. I. Price Elasticity of Demand 1. Definitions Price
More informationProblems: Table 1: Quilt Dress Quilts Dresses Helen 50 10 1.8 9 Carolyn 90 45 1 2
Problems: Table 1: Labor Hours needed to make one Amount produced in 90 hours: Quilt Dress Quilts Dresses Helen 50 10 1.8 9 Carolyn 90 45 1 2 1. Refer to Table 1. For Carolyn, the opportunity cost of 1
More informationName: Date: 2. When the price goes down, the quantity demanded goes up. This price elasticity measures how:
Name: Date: 1. The price elasticity of demand measures the responsiveness of the change in the: A) quantity demanded to a change in the price. B) price to a change in the quantity demanded. C) slope of
More informationECON Chapter 4 review quiz
1) The price elasticity of demand measures: ECON 190002 Chapter 4 review quiz a) the percentage change in quantity demanded as a result of a 1 percent change in supply b) the change in quantity demanded
More informationCHAPTER 4 APPLICATIONS OF SUPPLY AND DEMAND
CHAPTER 4 APPLICATIONS OF SUPPLY AND DEMAND I. CHAPTER OVERVIEW There is a common expression among people who think about economic issues: It s all a matter of supply and demand. This expression is, for
More informationMULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
Chapter 11 Perfect Competition  Sample Questions MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Perfect competition is an industry with A) a
More informationIn early 2002, with New Jersey facing a $5.3 billion budget gap, Governor
19.1 The Three Rules of Tax Incidence The Equity Implications of Taxation: Tax Incidence 19 19.2 Tax Incidence Extensions 19.3 General Equilibrium Tax Incidence 19.4 The Incidence of Taxation in the United
More informationChapter 5 Applications of Supply and Demand
1. Elasticity of Demand (E d ) Chapter 5 Applications of Supply and Demand Measures the responsiveness of Q d to a change in price. How much does Q d change (%) when P changes (%)? We can use a formula
More informationThe formula to measure the rice elastici coefficient is Percentage change in quantity demanded E= Percentage change in price
a CHAPTER 6: ELASTICITY, CONSUMER SURPLUS, AND PRODUCER SURPLUS Introduction Consumer responses to changes in prices, incomes, and prices of related products can be explained by the concept of elasticity.
More informationChapter 4: Elasticity. Monday, June 28 Tuesday, June 29
Chapter 4: Elasticity Monday, June 28 Tuesday, June 29 price PERFECTLY INELASTIC SUPPLY 100 90 80 70 60 50 40 30 10 0 0 10 30 40 50 60 70 80 90 100 quantity S=60 =1602P Quantity supplied doesn t depend
More informationTaxationIncidence (Chapter 19)
(Chapter 19) Who bears the burden of a tax? Is it the party that sends the check to the government? Not necessarily. Three rules of tax incidence The statutory burden of a tax does not describe who really
More informationL04. Chapter 6: Elasticity: The Responsiveness of Demand and Supply
L04 Chapter 6: Elasticity: The Responsiveness of Demand and Supply Elasticity Demand shows us the relationship between price and quantity demanded, all else constant Does quantity respond to price changes
More informationECON 2100 (Summer 2010 Sections 05 and 06) Exam #2 (Version A)
ECON 21 (Summer 21 Sections 5 and 6) Exam #2 (Version A) Multiple Choice Questions: (3 points each) 1. refers to a measure of the benefit realized by a seller from making a sale, defined as the difference
More informationResponsiveness of Demand and Supply
CHAPTER 6 Elasticity: The Responsiveness of Demand and Supply Chapter Summary and Learning Objectives 6.1 The Price Elasticity of Demand and Its Measurement (pages 172 178) Define price elasticity of demand
More informationDemand, Supply and Elasticity
Demand, Supply and Elasticity CHAPTER 2 OUTLINE 2.1 Demand and Supply Definitions, Determinants and Disturbances 2.2 The Market Mechanism 2.3 Changes in Market Equilibrium 2.4 Elasticities of Supply and
More informationManagerial Economics
Managerial Economics Unit 1: Demand Theory Rudolf WinterEbmer Johannes Kepler University Linz Winter Term 2012/13 WinterEbmer, Managerial Economics: Unit 1  Demand Theory 1 / 54 OBJECTIVES Explain the
More informationTwo aspects of an elasticity are important: (1) whether it positive or negative and (2) whether it is greater than 1 or less than 1 in absolute value
Overview I. The Elasticity Concept  Own Price Elasticity  Elasticity and Total Revenue  CrossPrice Elasticity  Income Elasticity II. Demand Functions  Linear  LogLinear II. Regression Analysis
More informationManagerial Economics Prof. Trupti Mishra S.J.M School of Management Indian Institute of Technology, Bombay. Lecture  14 Elasticity of Supply
Managerial Economics Prof. Trupti Mishra S.J.M School of Management Indian Institute of Technology, Bombay Lecture  14 Elasticity of Supply We will continue our discussion today, on few more concept of
More informationAP MICRO Week 4 Practice Quiz: M, 20
1 1. A marketing survey shows that gate receipts would increase if the price of tickets to a summer rock concert increased, even though the number of tickets sold would fall. What does this imply about
More information(P 2 P 1 )/[(P 1 + P 2 )/2]. It shows how flexible sellers are to a change in price.
September 15, 2008 Elasticity of supply The price elasticity of supply measures how quantity offered of a good responds to a change in the good s price. It is defined the same as price elasticity of demand,
More information4 ELASTICITY. Chapter. Key Concepts
Chapter 4 ELASTICITY Key Concepts Price Elasticity of Demand The price elasticity of demand is a unitsfree measure of responsiveness of the quantity demanded of a good to a change in its price when all
More informationChapter 3 Market Demand, Supply, and Elasticity
Chapter 3 Market Demand, Supply, and Elasticity After reading chapter 3, MARKET DEMAND, SUPPLY, AND ELASTICITY, you should be able to: Discuss the Law of Demand and draw a Demand Curve. Distinguish between
More information10/1/2011 25% 25% 25% 25% Impact of lower price on total consumer expenditures or a firm s total revenue
Micro Chapter 7 Consumer Choice and Elasticity This chapter is an extension of the first part of Chapter 3 on demand and consumer theory Refer back to your Chapter 3 notes and mentally combine them with
More informationChapter 8. Competitive Firms and Markets
Chapter 8. Competitive Firms and Markets We have learned the production function and cost function, the question now is: how much to produce such that firm can maximize his profit? To solve this question,
More informationPЄ d = Percentage change in Quantity Demanded Percentage change in Price
Lesson 0 ELASTICITIES IMPORTANCE OF ELASTICITY IN OUR TODAY S LIFE There is much more importance of the concept of elasticity in our life. The firm which uses advertising to change prices uses the concept
More informationMidterm Exam #2. ECON 101, Section 2 summer 2004 Ying Gao. 1. Print your name and student ID number at the top of this cover sheet.
NAME: STUDENT ID: Midterm Exam #2 ECON 101, Section 2 summer 2004 Ying Gao Instructions Please read carefully! 1. Print your name and student ID number at the top of this cover sheet. 2. Check that your
More informationPAGE 1. Econ 2113  Test 2 Fall 2003 Dr. Rupp. Multiple Choice. 1. The price elasticity of demand measures
PAGE 1 Econ 2113  Test 2 Fall 2003 Dr. Rupp Multiple Choice 1. The price elasticity of demand measures a. how responsive buyers are to a change in income. b. how responsive sellers are to a change in
More informationhttp://ezto.mhecloud.mcgrawhill.com/hm.tpx
Page 1 of 17 1. Assume the price elasticity of demand for U.S. Frisbee Co. Frisbees is 0.5. If the company increases the price of each Frisbee from $12 to $16, the number of Frisbees demanded will Decrease
More informationC H A P T E R 4: The Price System, Demand and Supply, and Elas ticity. The Price System: Rationing and Allocating Resources
C H A P T E R 4 The Price System, Demand and Supply, and Elasticity Prepared by: Fernando Quijano and Yvonn Quijano Karl Case, Ray Fair The Price System: Rationing and Allocating Resources The market system,
More informationCHAPTER 10 MARKET POWER: MONOPOLY AND MONOPSONY
CHAPTER 10 MARKET POWER: MONOPOLY AND MONOPSONY EXERCISES 3. A monopolist firm faces a demand with constant elasticity of .0. It has a constant marginal cost of $0 per unit and sets a price to maximize
More informationCASE FAIR OSTER 2012 Pearson Education, Inc. Publishing as Prentice Hall Prepared by: Fernando Quijano & Shelly Tefft
P R I N C I P L E S O F ECONOMICS T E N T H E D I T I O N CASE FAIR OSTER Prepared by: Fernando Quijano & Shelly Tefft of 3 Elasticity 5 CHAPTER OUTLINE Price Elasticity of Demand Slope and Elasticity
More informationElasticity: The Responsiveness of Demand and Supply
Chapter 6 Elasticity: The Responsiveness of Demand and Supply Chapter Summary Elasticity measures how much one variable responds to changes in another variable. The price elasticity of demand measures
More informationChapter 4. The Theory of Demand Part A, 2009, Kwan Choi OPTIMAL CONSUMPTION BUNDLE
Chapter 4. The Theory of Demand Part A, 2009, Kwan Choi OPTIMAL CONSUMPTION BUNDLE A consumer s problem is to choose chose x 1 and x 2 to maximize U(x 1,x 2 ) subject to the budget constraint, M = p 1
More informationElasticity and its Applications
Chapter 5 MODERN PRINCIPLES OF ECONOMICS Third Edition Elasticity and its Applications Outline The Elasticity of Demand Applications of Demand Elasticity The Elasticity of Supply Applications of Supply
More information