Transcript of ELASTICITY OF DEMAND!! QUESTION: HOW MUCH DOES THE QUANTITY DEMANDED CHANGE WHEN THE PRICE OF THE...
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- ELASTICITY OF DEMAND!!
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- QUESTION: HOW MUCH DOES THE QUANTITY DEMANDED CHANGE WHEN THE
PRICE OF THE GOOD/SERVICE CHANGES? If price falls by $1: Will Qd
increase proportionally the same, less, or more?
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- Ep = measures the responsiveness of quantity demanded of a good
or service to changes in price. E.g. If Metro raised the price of
their tickets will they get more revenue?
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- MIDPOINT FORMULA
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- THE ANSWER 1Infinity0 UnitaryElastic Inelastic
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- EXAMPLES MARKET DEMAND FOR PEACHES ARE AS FOLLOWS; $2/KG 400KG
ARE PURCHASED, $2.50/KG 300KG ARE PURCHASED, $3/KG - 290KG ARE
PURCHASED WORK OUT THE ELASTICITY OF DEMAND FOR PEACHES BETWEEN
$2.50 AND $3. SHOW YOUR WORKING 0.19
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- EXAMPLES When Joey Sword guy dropped the price of his swords by
20% Quantity purchased increased by 9%. Explain to Joey, using
relevant economic data, why this may have been a poor decision
0.45
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- EXAMPLES BOBBY BLUE EYES HAS BEGUN SELLING HIS NEW JANDELS.
FROM HIS MARKET RESEARCH HE HAS FOUND OUT THE FOLLOWING ABOUT HIS
PRODUCT! If he sells them for $20 he will sell 2001 units but if he
sells them for $15 he will sell 3700 units Advise him on the
elasticity of demand for his product and what he should do as a
result of this information 2.08
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- Why inelastic or elastic? No close substitutes Small percentage
of total expenditure Necessary Not easily postponed
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- Many close substitutes Large percentage of total expenditure
Luxury Easily postponed
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- CRITERIA L.I; TO LEARN ELASTICITY IN RELATION TO PRODUCTS L.O;
- CALCULATE CROSS ELASTICITY OF DEMAND UNDERSTAND THE USES OF CROSS
ELASTICITY OF DEMAND
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- CROSS ELASTICITY OF DEMAND Is beer a compliment for pizza? If
it is how strong is the relationship? Is beer a substitute for
wine? If it is how strong is the relationship?
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- CROSS ELASTICITY OF DEMAND The responsiveness of quantity
demanded of one good, to the change in price of another.
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- FORMULA Ecross = Q2 good a Q1 good aP2 good b P1 good b (Q1
good a + Q2 good a)(P1 good b + P2 good b) 2
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- WORKED QUESTION WE KNOW THAT THE ORIGINAL PRICE OF DIRTY UNDIES
IS $9 AND THE NEW PRICE OF DIRTY UNDIES IS $10. THE QUANTITY
DEMANDED OF Y-FRONTS WHEN THE PRICE OF DIRTY UNDIES IS $9 IS 150
AND WHEN THE PRICE IS $10 IS 190. YOU SHOULD HAVE THESE FOUR
FIGURES WRITTEN DOWN:
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- ANSWER 2.4 STRONG WEAK 12-20
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- CRITERIA L.I; TO LEARN ELASTICITY IN RELATION TO PRODUCTS L.O;
- CALCULATE INCOME ELASTICITY OF DEMAND UNDERSTAND THE USES OF
INCOME ELASTICITY OF DEMAND
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- INCOME ELASTICITY WHEN YOUR INCOME GOES UP WHAT ARE YOU LIKELY
TO BUY??????
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- INCOME ELASTICITY OF DEMAND MEASURES THE RESPONSIVENESS OF
QUANTITY DEMANDED TO CHANGES IN DISPOSABLE INCOME
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- REMINDER I got more disposable income. What should I
buy????
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- WHAT ARE THE 3 TYPES OF GOODS? NormalInferior
NecessityLuxuryInferior
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- I got more disposable income. What should I buy????
NecessityLuxuryInferior
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- FORMULA Ey = Q2 Q1 Y2 Y1 (Q1 + Q2)(Y1 + Y2) 2 2 Example Tori
gets an increase in pay from $150 to $200. Her demand for mince
pies increases from 3 to 5
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- 1.75 Luxury Inferior Good Necessity 2 1-20 Normal
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- CRITERIA L.I; TO LEARN ELASTICITY IN RELATION TO SUPPLIERS OF
PRODUCTS L.O; - CALCULATE INCOME ELASTICITY OF DEMAND UNDERSTAND
THE USES OF INCOME ELASTICITY OF DEMAND
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- SUPPLY OVER TIME! ELASTICITY'S FOR SUPPLY CURVES WILL CHANGE
OVER TIME. THIS IS DUE TO THE AVAILABILITY OF PRODUCTS ON THE
MARKET AT CERTAIN TIMES!
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- THE CAKE TIN!!!! Imagine: Silverstream year 13 Economics class
have got the go ahead to organise 10 of the worlds best bands to
perform at the cake tin for 5 hours!
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- THE SUPPLY OF TICKETS THE EVENT IS TO BE HELD ON THE 22 ND OF
JUNE 2014
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- SHORT-RUN SUPPLY At least 1 input is fixed. The firm is
restricted in its ability to change output. The supply curve is
relatively inelastic. We are unable to change supply to a large
degree!
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- MOMENTARY SUPPLY THE EVENT IS TO BE HELD TONIGHT!
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- MOMENTARY SUPPLY Supply is fixed regardless of the price. This
is illustrated by a perfectly inelastic curve. Firms are unable to
change any inputs (factors)
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- THE SUPPLY OF TICKETS THE EVENT IS IN 10 YEARS TIME!!! What
would the supply hizzle look like if the snoop D.O. double G was
featuring at the rock dizzle manizzle????
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- LONG-RUN SUPPLY All inputs are variable, therefore the firm can
be more adaptable and more efficient. Supply is more elastic.