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![Page 1: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/1.jpg)
1
Chapter 5 Elasticity of
Demand and SupplyThese slides supplement the textbook, but should not replace reading the textbook
![Page 2: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/2.jpg)
2
What is total revenue?Price multiplied by the quantity sold at that price
P X Q
![Page 3: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/3.jpg)
3
If you own a business and your raise price,
will your total revenue go up or down?
That all depends on the price elasticity of demand for your product
![Page 4: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/4.jpg)
4
more money is made per unit fewer units are sold
When price increases what two things happen?
![Page 5: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/5.jpg)
5
What is price elasticity of demand?
A measure of the responsiveness of quantity demanded to a price change
![Page 6: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/6.jpg)
6
How do I measure responsiveness?
You measure the percent change in quantity demanded when price changes
![Page 7: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/7.jpg)
7
How do I measure a percent change
in quantity?You take the difference between the two quantities and divide by the original number
![Page 8: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/8.jpg)
8
For example, if there is an increase from 3 units to 5, what is the percentage increase?
The percent increase is 67%
![Page 9: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/9.jpg)
9
The difference between the two numbers is 2 and the original number is 3
How do I know this?
![Page 10: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/10.jpg)
10
So …
2/3 = 67%
![Page 11: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/11.jpg)
11
If there is a decrease from 5 units to 3, what is
the percent decrease?
2/5 = 40%
![Page 12: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/12.jpg)
12
How do I calculate price elasticity of
demand?Price elasticity of demand =
% change in price
% change in quantity
![Page 13: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/13.jpg)
13
If demand is elasticelastic - revenue goes down
If demand is inelasticinelastic - revenue goes up
If NRCC raises tuition, what happens
to total revenue?
![Page 14: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/14.jpg)
14
more money is made per unit fewer units are sold
When price increases what two things happen?
![Page 15: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/15.jpg)
15
If I increase my price from $1.00 to $1.10, how will this effect
my revenue?The answer depends upon the price elasticity of demand for your product
![Page 16: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/16.jpg)
16
When price increases and there is a net loss in revenue, the demand curve is price elastic, > 1
![Page 17: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/17.jpg)
17
More money is lost because of the fewer units sold then the money gained because of the higher price
When price increases demand is elastic when …?
![Page 18: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/18.jpg)
18
When price increases and there is a net gain in revenue, the demand curve is price inelastic, < 1
![Page 19: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/19.jpg)
19
More money is gained because of the higher price then the money lost because of the fewer units sold
When price increases demand is inelastic when …?
![Page 20: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/20.jpg)
20
Elastic demand curves are more horizontal than inelastic demand curves
What do elastic demand curves look like?
![Page 21: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/21.jpg)
21
Inelastic demand curves are more vertical than elastic demand curves
What do inelastic demand curves
look like?
![Page 22: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/22.jpg)
22
P
Q0
P
Q0
A B
D D
Which of the above demand curves is oil and which ice cream?
Ice creamoil
![Page 23: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/23.jpg)
23
oil is a necessity oil has few substitutes
Why is the demand curve for oil more
inelastic?
![Page 24: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/24.jpg)
24
Ice cream is a luxury ice cream has many substitutes
Why is the demand curve for ice cream
more elastic?
![Page 25: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/25.jpg)
25
One
If tripling of the price triples the quantity of a
good supplied, then price elasticity of supply is?
![Page 26: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/26.jpg)
26
False, the dollar increase is not given as a percent change
If a $1 increase in price leads to a 3-unit decrease in quantity demanded, then demand must be elastic ?
![Page 27: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/27.jpg)
27
What is unit-elastic demand?
The type of demand that exists when a percent change in price causes an equal (but of opposite sign) percent change in quantity demanded
![Page 28: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/28.jpg)
28
If total revenue does not change when price increases, the demand curve is unitary elastic, value equals -1
![Page 29: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/29.jpg)
29
substitutes consumers budgets time need
What determines the price elasticity
of demand?
![Page 30: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/30.jpg)
30
The more substitutes the more elastic is the demand
What do substitutes have to do with
elasticity?
![Page 31: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/31.jpg)
31
How does the price elasticity of demand
for running shoes compare to Nike running shoes?
The demand for running shoes is less elastic than the demand for Nike running shoes
![Page 32: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/32.jpg)
32
The smaller the price of something is in relation to your budget, the more inelastic the demand
How does my budget effect demand?
![Page 33: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/33.jpg)
33
The more time to adjust to a price change the more elastic the demand
What does time have to do with elasticity?
![Page 34: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/34.jpg)
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Demand Becomes More Elastic Over Time P
rice
per
un
it
Quantity per period
$1.25$1.00
9575500
DWDM
DY
W=weekM=monthY=year
![Page 35: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/35.jpg)
35
The greater the need the more inelastic the demand
What does need have to do with elasticity?
![Page 36: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/36.jpg)
36
Price elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price
How do I measure the price elasticity of demand for a good?
![Page 37: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/37.jpg)
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Problem - when you move along a demand curve between two points, you will get different answers to elasticity depending if you are moving up or down the demand curve
![Page 38: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/38.jpg)
38
If you go from 3 to 5, the percentage change is 2/3 , but if you go from 5 to 3, the percentage change is 2/5 , so the elasticities are different !
![Page 39: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/39.jpg)
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A
B
2
5P
Q
D
39
1
3
4
6
![Page 40: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/40.jpg)
40
The answer to this problem is to use thearc elasticity of demand formula which is ...
![Page 41: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/41.jpg)
41
change in quantity demanded
sum of quantities/2
divided by
change in price
sum of prices/2
![Page 42: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/42.jpg)
42
ED = q'D– q
D
(q'D + q )/2D
p'– p(p'+ p)/2
Price elasticity equals the percentage in quantity demanded divided by the percent change in
price (using the arc formula)
![Page 43: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/43.jpg)
43
ED = q'D– q
D
(q'D + q )D p'– p(p'+ p)X
Mathematically, we invert the denominator and multiply, the 2’s
cancel one another out, so formula becomes:
![Page 44: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/44.jpg)
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Quantity Price
Bananas
Oranges
200
240
400
280
$20
$18
$40
$70
![Page 45: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/45.jpg)
45
What is the Price Elasticity of Demand for
bananas?
40220
2
19
40
220X
192 =
=760440
![Page 46: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/46.jpg)
46
What is the Price Elasticity of Demand for
oranges?
120340
30
55
120
340X
5530 =
=6,600
10,200
![Page 47: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/47.jpg)
47
What is a linear demand curve?A straight-line demand curve
![Page 48: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/48.jpg)
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Demand, Price Elasticity, and Total RevenueP
rice
per
un
it
Panel A: Demand and price elasticity
Quantity per period
10 0
2030405060708090
$100
100 200 500 8009001,000
c
de
ba
Elastic
Unit elastic
Inelastic
![Page 49: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/49.jpg)
49
How do price and total revenue relate?
In the elastic range of a demand curve, price and total revenue move in opposite directions.
In the inelastic range, price and total revenue move in the same direction
![Page 50: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/50.jpg)
50
Demand, Price Elasticity, and Total Revenue
Panel B: Total Revenue
To
tal R
even
ue
Quantity per period
500
$25,000Total revenue
0 1,000
![Page 51: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/51.jpg)
51
What is a perfectly elastic demand curve?
A horizontal line reflecting a situation in which any price increase reduces quantity demanded to zero
![Page 52: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/52.jpg)
52
Pri
ce p
er u
nit
Quantity per period
A Perfectly Elastic Demand Curve
0
DED = –p
![Page 53: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/53.jpg)
53
What is a perfectlyinelastic demand curve?
A vertical line reflecting a situation in which price change has no effect on the quantity demanded
![Page 54: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/54.jpg)
54
Pri
ce p
er u
nit
Quantity per period
A Perfectly Inelastic Demand Curve
0
D'
ED = 0
Q
![Page 55: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/55.jpg)
55
What is unit elasticity of demand?
The type of demand that exists when price elasticity is the same everywhere along the curve, it has an elasticity of -1.0
![Page 56: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/56.jpg)
56
0
D''
60
Pri
ce p
er u
nit
Quantity per period100
$6
$10ED = –1
A Unit Elastic Demand Curve
![Page 57: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/57.jpg)
57
The percentage change in the quantity demanded resulting from a 1 percent change in total income
What is income elasticity of demand?
![Page 58: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/58.jpg)
58
Something that people will by more of as their incomes increase
What is anormal good?
![Page 59: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/59.jpg)
59
Positive
If a good is normal, then the income
elasticity of demand for that good is ?
![Page 60: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/60.jpg)
60
Something that people will by less of as their incomes increase
What is aninferior good?
![Page 61: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/61.jpg)
61
Negative
If a good is inferior, then the income
elasticity of demand for that good is ?
![Page 62: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/62.jpg)
62
What is cross–price elasticity of demand?
The percent change in the demand of one good (at a given price) as a result of the percent change in the price of another good
![Page 63: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/63.jpg)
63
If negative - complements (steak &
steak sauce)
If positive - substitutes (butter & margarine)
![Page 64: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/64.jpg)
64
If an increase in the price of peanut butter causes a decline in the demand for
jelly, then ?
the goods are complements
![Page 65: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/65.jpg)
65
If a decrease in the price of one good causes a
decline in the demand for another good, then ?
The goods are substitutes
![Page 66: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/66.jpg)
66
What are some examples of
complementary goods?computers and software
cars and gasoline
CDs and playlists
![Page 67: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/67.jpg)
67
What is price elasticity of supply?A measure of the responsiveness of quantity supplied to a price change
![Page 68: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/68.jpg)
68
ES = q'S– q
S
(q'S + q )/2S
p'– p(p'+ p)/2
Price elasticity equals the percentage in quantity demanded divided by the percent change in
price (using the arc formula)
![Page 69: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/69.jpg)
69
What is a perfectly elastic supply curve?
A horizontal line reflecting a situation in which any price decrease reduces the quantity supplied to zero; the elasticity value is infinity
![Page 70: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/70.jpg)
70
Pri
ce p
er u
nit
Quantity per period
Perfectly Elastic Supply
0
SES =
p
![Page 71: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/71.jpg)
71
What is a perfectly inelastic supply curve?
A vertical line reflecting a situation in which a price change has no effect on the quantity supplied; the elasticity value is zero
![Page 72: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/72.jpg)
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Pri
ce p
er u
nit
Quantity per period
A Perfectly Inelastic Supply Curve
0
S'
ES = 0
Q
![Page 73: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/73.jpg)
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What is unit-elastic supply?
A percent change in price causes an identical percent change in quantity supplied; the elasticity value is one
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How is unit-elastic supply depicted?A supply curve that is a straight line through the origin
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Pri
ce p
er u
nit
Quantity per period
A Unit Elastic Supply Curve
0
S'
10 20
5
$10
![Page 76: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/76.jpg)
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What are the determinants of supply elasticity?
Costs Time
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Market Supply Becomes More Elastic Over Time P
rice
per
un
it
Quantity per period
$12
$10
0 705550 100
Sw S
mSy
W=weekM=monthY=year
![Page 78: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/78.jpg)
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Effects of Different Demand Elasticities on Sales Tax Incidence
Millions of packs per day
Pri
ce p
er p
ack
$2.30
2.001.90
109
$0.40 tax
D
SSt
0
Panel A: Less elastic demand
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Effects of Different Demand Elasticities on Sales Tax Incidence
Millions of packs per day
Pri
ce p
er p
ack
$2.102.00
1.70
107
$0.40 tax
D'
SSt
0
Panel B: More elastic demand
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Effects of Different Supply Elasticities on Sales Tax Incidence
Millions of packs per day
Pri
ce p
er p
ack
$2.30
$2.00$1.90
108
$0.40 taxS
St
0
Panel A: More elastic supply
D''
![Page 81: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/81.jpg)
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Effects of Different Supply Elasticities on Sales Tax Incidence
Millions of packs per day
Pri
ce p
er p
ack $2.10
2.00
1.70
109
$0.40 tax
D''
SSt
0
Panel B: Less elastic supply
![Page 82: 1 Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook.](https://reader037.fdocuments.in/reader037/viewer/2022103023/56649db45503460f94aa45fd/html5/thumbnails/82.jpg)
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