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Econ ppt 3
 

Econ ppt 3

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  • Elasticity is a way of measuring the sensitivity of a variable to a change in price and non-price determinants.
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  • PED: How sensitive is a buyer to a change in price?XED: How sensitive is a buyer when another product changes price?YED: How sensitive is a buyer to changes in their own income?PES: How sensitive is a supplier to a change in price?
  • Perfectly Elastic: At a certain price the demand is infinite but not at any other price.Perfectly Inelastic: A change in price has no impact on the quantity demanded
  • The Existence of Substitutes: The more substitutes that exist for a good, the more responsive consumers will be to a change in its price.The Percentage of a Person’s Total Budget Devoted to the Purchase of that Good: The larger the percentage of your budget devoted to an item, the more price elastic will its demand be.The Time Allowed for Adjustment: The longer the time allowed for adjustment to a price change, the more that consumers will react. The longer any price change persists, the greater the elasticity of demand, other things held constant.
  • You can ask students to show this with a diagram.
  • You can ask students to show this with a diagram.

Econ ppt 3 Econ ppt 3 Presentation Transcript

  • MicroeconomicsElasticities
    1
  • Elasticities
    How sensitive is a buyer to a change in price?
    How sensitive is a buyer when another product changes price?
    How sensitive is a buyer to changes in their own income?
    How sensitive is a supplier to a change in price?
    2
  • 3
  • Price Elasticity of Demand (PED)
    4
    Definition:
    A measure of the responsiveness of the demand for a product to changes in its own price.
  • Range of PED values
    5
  • Price Inelastic Demand
    6
  • Price Elastic Demand
    7
  • Range of PED
    8
  • Extreme Cases
    9
  • Perfectly Elastic Demand
    10
  • Perfectly Inelastic Demand
    11
  • Unit Elastic Demand
    12
  • Determinants of PED
    13
  • Determinants of PEDIncome
    14
  • Determinants of PEDSubstitutes
    15
  • Determinants of PEDSubstitutes
    16
  • Cross-Elasticity of Demand (XED)
    17
    Definition:
    The cross elasticity is a measure of the responsiveness of the demand for one product to changes in the price of another product.
    XED = Percentage Change in Quantity Demanded for X
    Percentage Change in Price of Y
  • Range of XED values
    18
  • Income Elasticity of Demand (YED)
    19
    Definition:
    The income elasticity of demand is a measure of the responsiveness of the quantity demanded to changes in real income.
    YED = Percentage Change in Quantity Demanded
    Percentage Change in Income
  • Types of Goods and YED
    20
  • Price Elasticity of Supply
    21
    Definition:
    The responsiveness of the quantity of a good supplied to changes in its price.
    PES = Percentage Change in Quantity Supplied
    Percentage Change in Price
  • Determinants of PESTime
    22
  • Determinants of PESSpare Capacity
    23