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  • 1. Microeconomics Chapter 5 Elasticity
  • 2. 0 10 20 30 40 50 60 70 80 90 100 0 1 2 3 4 5 6 7 8 9 10 Price Quantity Movement along the Demand Curve
  • 3. 0 10 20 30 40 50 60 70 80 90 100 0 1 2 3 4 5 6 7 8 9 10 Price Quantity Movement along the Demand Curve
  • 4. 0 10 20 30 40 50 60 70 80 90 100 0 1 2 3 4 5 6 7 8 9 10 Price Quantity Movement along the Demand Curve
  • 5. 0 10 20 30 40 50 60 70 80 90 100 0 1 2 3 4 5 6 7 8 9 10 Price Quantity Movement along the Demand Curve
  • 6. 0 10 20 30 40 50 60 70 80 90 100 0 1 2 3 4 5 6 7 8 9 10 Price Quantity Movement along the Demand Curve
  • 7. 0 10 20 30 40 50 60 70 80 90 100 0 1 2 3 4 5 6 7 8 9 10 Price Quantity Movement along the Demand Curve
  • 8. 0 10 20 30 40 50 60 70 80 90 100 0 1 2 3 4 5 6 7 8 9 10 Price Quantity Movement along the Demand Curve
  • 9. 0 10 20 30 40 50 60 70 80 90 100 0 1 2 3 4 5 6 7 8 9 10 Price Quantity Movement along the Demand Curve
  • 10. 0 10 20 30 40 50 60 70 80 90 100 0 1 2 3 4 5 6 7 8 9 10 Price Quantity Movement along the Demand Curve
  • 11. 0 10 20 30 40 50 60 70 80 90 100 0 1 2 3 4 5 6 7 8 9 10 Price Quantity Movement along the Demand Curve
  • 12. 0 10 20 30 40 50 60 70 80 90 100 0 1 2 3 4 5 6 7 8 9 10 Price Quantity Movement along the Demand Curve
  • 13. 0 10 20 30 40 50 60 70 80 90 100 0 1 2 3 4 5 6 7 8 9 10 Price Quantity Movement along the Demand Curve
  • 14. 0 10 20 30 40 50 60 70 80 90 100 0 1 2 3 4 5 6 7 8 9 10 Price Quantity Movement along the Demand Curve
  • 15. 0 10 20 30 40 50 60 70 80 90 100 0 1 2 3 4 5 6 7 8 9 10 Price Quantity Movement along the Demand Curve
  • 16. 0 10 20 30 40 50 60 70 80 90 100 0 1 2 3 4 5 6 7 8 9 10 Price Quantity Movement along the Demand Curve
  • 17. 0 10 20 30 40 50 60 70 80 90 100 0 1 2 3 4 5 6 7 8 9 10 Price Quantity Movement along the Demand Curve
  • 18. 0 10 20 30 40 50 60 70 80 90 100 0 1 2 3 4 5 6 7 8 9 10 Price Quantity Movement along the Demand Curve
  • 19. 0 10 20 30 40 50 60 70 80 90 100 0 1 2 3 4 5 6 7 8 9 10 Price Quantity Movement along the Demand Curve Price changes demand curve does not change quantity demanded changes
  • 20. 0 10 20 30 40 50 60 70 80 90 100 0 1 2 3 4 5 6 7 8 9 10 Price Quantity Shift in the Demand Curve
  • 21. 0 10 20 30 40 50 60 70 80 90 100 0 1 2 3 4 5 6 7 8 9 10 Price Quantity Shift in the Demand Curve
  • 22. 0 10 20 30 40 50 60 70 80 90 100 0 1 2 3 4 5 6 7 8 9 10 Price Quantity Shift in the Demand Curve
  • 23. 0 10 20 30 40 50 60 70 80 90 100 0 1 2 3 4 5 6 7 8 9 10 Price Quantity Shift in the Demand Curve
  • 24. 0 10 20 30 40 50 60 70 80 90 100 0 1 2 3 4 5 6 7 8 9 10 Price Quantity Shift in the Demand Curve
  • 25. 0 10 20 30 40 50 60 70 80 90 100 0 1 2 3 4 5 6 7 8 9 10 Price Quantity Shift in the Demand Curve
  • 26. 0 10 20 30 40 50 60 70 80 90 100 0 1 2 3 4 5 6 7 8 9 10 Price Quantity Shift in the Demand Curve
  • 27. 0 10 20 30 40 50 60 70 80 90 100 0 1 2 3 4 5 6 7 8 9 10 Price Quantity Shift in the Demand Curve
  • 28. 0 10 20 30 40 50 60 70 80 90 100 0 1 2 3 4 5 6 7 8 9 10 Price Quantity Shift in the Demand Curve
  • 29. 0 10 20 30 40 50 60 70 80 90 100 0 1 2 3 4 5 6 7 8 9 10 Price Quantity Shift in the Demand Curve
  • 30. 0 10 20 30 40 50 60 70 80 90 100 0 1 2 3 4 5 6 7 8 9 10 Price Quantity Shift in the Demand Curve
  • 31. 0 10 20 30 40 50 60 70 80 90 100 0 1 2 3 4 5 6 7 8 9 10 Price Quantity Shift in the Demand Curve
  • 32. 0 10 20 30 40 50 60 70 80 90 100 0 1 2 3 4 5 6 7 8 9 10 Price Quantity Shift in the Demand Curve
  • 33. 0 10 20 30 40 50 60 70 80 90 100 0 1 2 3 4 5 6 7 8 9 10 Price Quantity Shift in the Demand Curve
  • 34. 0 10 20 30 40 50 60 70 80 90 100 0 1 2 3 4 5 6 7 8 9 10 Price Quantity Shift in the Demand Curve
  • 35. 0 10 20 30 40 50 60 70 80 90 100 0 1 2 3 4 5 6 7 8 9 10 Price Quantity Shift in the Demand Curve
  • 36. 0 10 20 30 40 50 60 70 80 90 100 0 1 2 3 4 5 6 7 8 9 10 Price Quantity Shift in the Demand Curve Price does not change demand curve shifts quantity demanded changes
  • 37. Movement or Shift? Variable Change Movement Shift Price Income Related Goods Tastes Population and Demographics Expectations
  • 38. elasticity price elasticity of demand total revenue total expenditure income elasticity of demand cross-price elasticity of demand price elasticity of supply Key Terms
  • 39. ELASTICITY EQUATION BENCHMARK Price Elasticity of Demand Cross-Price Elasticity Income Elasticity Price Elasticity of Supply Midpoint Formula Inelastic | Elastic 1 Compliments | Substitutes 0 Inferior | Normal | Luxury 0 1 Inelastic | Elastic 1 %∆QD %∆P %∆QS %∆P %∆QD1 %∆P2 %∆QD %∆I ∆Q ∆PQ Px
  • 40. Elasticity
  • 41. Elasticity If I change one thing does another thing also change?
  • 42. Elasticity
  • 43. Elasticity A measure of how much one economic variable responds to changes in another economic variable
  • 44. Percentage Change %
  • 45. Percentage Change % New - Old Old
  • 46. Percentage Change % New - Old Old Ignore units in the scale
  • 47. Scales can be deceptive
  • 48. $0 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 1 2 3 4 5 6 7 8 9 10 Gallons - Gasoline Price
  • 49. $0 $10.00 $20.00 $30.00 $40.00 $50.00 $60.00 $70.00 $80.00 $90.00 $100.00 3 4.5 6 Gallons - Gasoline Price
  • 50. Demand Schedule
  • 51. Demand Schedule
  • 52. Price Quantity Total Revenue 90 1 90 80 2 160 70 3 210 60 4 240 50 5 250 40 6 240 30 7 210 20 8 160 10 9 90 Demand Schedule
  • 53. Price Quantity Total Revenue 90 1 90 80 2 160 70 3 210 60 4 240 50 5 250 40 6 240 30 7 210 20 8 160 10 9 90 Demand Schedule
  • 54. Price Quantity Total Revenue 90 1 90 80 2 160 70 3 210 60 4 240 50 5 250 40 6 240 30 7 210 20 8 160 10 9 90 Demand Schedule
  • 55. Price Quantity Total Revenue 90 1 90 80 2 160 70 3 210 60 4 240 50 5 250 40 6 240 30 7 210 20 8 160 10 9 90 Demand Schedule Total Revenue Curve
  • 56. Price Quantity Total Revenue 90 1 90 80 2 160 70 3 210 60 4 240 50 5 250 40 6 240 30 7 210 20 8 160 10 9 90 Demand Schedule Total Revenue Curve Total Revenue
  • 57. Price Quantity Total Revenue 90 1 90 80 2 160 70 3 210 60 4 240 50 5 250 40 6 240 30 7 210 20 8 160 10 9 90 Demand Schedule Total Revenue Curve Total Revenue Price Per Pizza
  • 58. Price Quantity Total Revenue 90 1 90 80 2 160 70 3 210 60 4 240 50 5 250 40 6 240 30 7 210 20 8 160 10 9 90 Demand Schedule Total Revenue Curve 10 20 30 40 50 60 70 80 90 0 60 120 180 240 300Total Revenue Price Per Pizza
  • 59. Price Quantity Total Revenue 90 1 90 80 2 160 70 3 210 60 4 240 50 5 250 40 6 240 30 7 210 20 8 160 10 9 90 Demand Schedule Total Revenue Curve 10 20 30 40 50 60 70 80 90 0 60 120 180 240 300Total Revenue Price Per Pizza
  • 60. Price Quantity Total Revenue 90 1 90 80 2 160 70 3 210 60 4 240 50 5 250 40 6 240 30 7 210 20 8 160 10 9 90 Demand Schedule Total Revenue Curve 10 20 30 40 50 60 70 80 90 0 60 120 180 240 300Total Revenue Price Per Pizza
  • 61. Price Quantity Total Revenue 90 1 90 80 2 160 70 3 210 60 4 240 50 5 250 40 6 240 30 7 210 20 8 160 10 9 90 Demand Schedule Total Revenue Curve 10 20 30 40 50 60 70 80 90 0 60 120 180 240 300Total Revenue Price Per Pizza
  • 62. Price Quantity Total Revenue 90 1 90 80 2 160 70 3 210 60 4 240 50 5 250 40 6 240 30 7 210 20 8 160 10 9 90 Demand Schedule Total Revenue Curve 10 20 30 40 50 60 70 80 90 0 60 120 180 240 300Total Revenue Price Per Pizza
  • 63. Price Quantity Total Revenue 90 1 90 80 2 160 70 3 210 60 4 240 50 5 250 40 6 240 30 7 210 20 8 160 10 9 90 Demand Schedule Total Revenue Curve 10 20 30 40 50 60 70 80 90 0 60 120 180 240 300Total Revenue Price Per Pizza
  • 64. Price Quantity Total Revenue 90 1 90 80 2 160 70 3 210 60 4 240 50 5 250 40 6 240 30 7 210 20 8 160 10 9 90 Demand Schedule Total Revenue Curve 10 20 30 40 50 60 70 80 90 0 60 120 180 240 300Total Revenue Price Per Pizza
  • 65. Price Quantity Total Revenue 90 1 90 80 2 160 70 3 210 60 4 240 50 5 250 40 6 240 30 7 210 20 8 160 10 9 90 Demand Schedule Total Revenue Curve 10 20 30 40 50 60 70 80 90 0 60 120 180 240 300Total Revenue Price Per Pizza
  • 66. Price Quantity Total Revenue 90 1 90 80 2 160 70 3 210 60 4 240 50 5 250 40 6 240 30 7 210 20 8 160 10 9 90 Demand Schedule Total Revenue Curve 10 20 30 40 50 60 70 80 90 0 60 120 180 240 300Total Revenue Price Per Pizza
  • 67. Price Quantity Total Revenue 90 1 90 80 2 160 70 3 210 60 4 240 50 5 250 40 6 240 30 7 210 20 8 160 10 9 90 Demand Schedule Total Revenue Curve 10 20 30 40 50 60 70 80 90 0 60 120 180 240 300Total Revenue Price Per Pizza
  • 68. Price Elasticity of Demand
  • 69. Price Elasticity of Demand
  • 70. Price Elasticity of Demand % %
  • 71. Price Elasticity of Demand % % QD
  • 72. Price Elasticity of Demand % % QD P
  • 73. Price Elasticity of Demand % % QD P Percentage Change in Quantity Demanded Percentage Change in Price
  • 74. Price Elasticity of Demand 1 ElasticInelastic <1 >1 1. Calculate Elasticity 2.Take AbsoluteValue 3. Compare to benchmark of 1
  • 75. $0 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 1 2 3 4 5 6 7 8 9 10 Gallons - Gasoline Price
  • 76. $0 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 1 2 3 4 5 6 7 8 9 10 Gallons - Gasoline Price
  • 77. $0 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 1 2 3 4 5 6 7 8 9 10 Gallons - Gasoline Price
  • 78. $0 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 1 2 3 4 5 6 7 8 9 10 Gallons - Gasoline Price
  • 79. $0 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 1 2 3 4 5 6 7 8 9 10 Gallons - Gasoline Price
  • 80. $0 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 1 2 3 4 5 6 7 8 9 10 Gallons - Gasoline Price %QD %P
  • 81. $0 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 1 2 3 4 5 6 7 8 9 10 Gallons - Gasoline Price %QD %P (4-5)÷5 (6-3)÷3
  • 82. $0 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 1 2 3 4 5 6 7 8 9 10 Gallons - Gasoline Price %QD %P (4-5)÷5 (6-3)÷3 -.2 1
  • 83. $0 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 1 2 3 4 5 6 7 8 9 10 Gallons - Gasoline Price %QD %P (4-5)÷5 (6-3)÷3 -.2 1 .2
  • 84. $0 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 1 2 3 4 5 6 7 8 9 10 Gallons - Ice Cream Price Price Increase
  • 85. $0 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 1 2 3 4 5 6 7 8 9 10 Gallons - Ice Cream Price Price Increase
  • 86. $0 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 1 2 3 4 5 6 7 8 9 10 Gallons - Ice Cream Price Price Increase
  • 87. $0 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 1 2 3 4 5 6 7 8 9 10 Gallons - Ice Cream Price Price Increase
  • 88. $0 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 1 2 3 4 5 6 7 8 9 10 Gallons - Ice Cream Price Price Increase
  • 89. $0 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 1 2 3 4 5 6 7 8 9 10 Gallons - Ice Cream Price Price Increase
  • 90. $0 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 1 2 3 4 5 6 7 8 9 10 Gallons - Ice Cream Price %QD %P Price Increase
  • 91. $0 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 1 2 3 4 5 6 7 8 9 10 Gallons - Ice Cream Price %QD %P (3-5)÷5 (4-3)÷3 Price Increase
  • 92. $0 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 1 2 3 4 5 6 7 8 9 10 Gallons - Ice Cream Price %QD %P (3-5)÷5 (4-3)÷3 -.4 .33 Price Increase
  • 93. $0 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 1 2 3 4 5 6 7 8 9 10 Gallons - Ice Cream Price %QD %P (3-5)÷5 (4-3)÷3 -.4 .33 1.2 Price Increase
  • 94. $0 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 1 2 3 4 5 6 7 8 9 10 Gallons - Ice Cream Price Price Decrease
  • 95. $0 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 1 2 3 4 5 6 7 8 9 10 Gallons - Ice Cream Price Price Decrease
  • 96. $0 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 1 2 3 4 5 6 7 8 9 10 Gallons - Ice Cream Price Price Decrease
  • 97. $0 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 1 2 3 4 5 6 7 8 9 10 Gallons - Ice Cream Price Price Decrease
  • 98. $0 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 1 2 3 4 5 6 7 8 9 10 Gallons - Ice Cream Price Price Decrease
  • 99. $0 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 1 2 3 4 5 6 7 8 9 10 Gallons - Ice Cream Price Price Decrease
  • 100. $0 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 1 2 3 4 5 6 7 8 9 10 Gallons - Ice Cream Price %QD %P Price Decrease
  • 101. $0 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 1 2 3 4 5 6 7 8 9 10 Gallons - Ice Cream Price %QD %P (5-3)÷3 (3-4)÷4 Price Decrease
  • 102. $0 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 1 2 3 4 5 6 7 8 9 10 Gallons - Ice Cream Price %QD %P (5-3)÷3 (3-4)÷4 .66 -.25 Price Decrease
  • 103. $0 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 1 2 3 4 5 6 7 8 9 10 Gallons - Ice Cream Price %QD %P (5-3)÷3 (3-4)÷4 .66 -.25 2.67 Price Decrease
  • 104. Midpoint Formula
  • 105. Midpoint Formula Q Q P P
  • 106. Midpoint Formula Delta Q over Q Bar Q Q P P
  • 107. Midpoint Formula Delta Q over Q Bar Delta P over P Bar Q Q P P
  • 108. Midpoint Formula Q Q P P
  • 109. Midpoint Formula Q Q P P Trick: Flip denominator and multiply
  • 110. Midpoint Formula Q Q P P Trick: Flip denominator and multiply
  • 111. Midpoint Formula Q Q P P Trick: Flip denominator and multiply X =
  • 112. $0 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 1 2 3 4 5 6 7 8 9 10 Gallons - Ice Cream Price Midpoint Formula
  • 113. $0 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 1 2 3 4 5 6 7 8 9 10 Gallons - Ice Cream Price Midpoint Formula
  • 114. $0 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 1 2 3 4 5 6 7 8 9 10 Gallons - Ice Cream Price Midpoint Formula
  • 115. $0 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 1 2 3 4 5 6 7 8 9 10 Gallons - Ice Cream Price Midpoint Formula
  • 116. $0 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 1 2 3 4 5 6 7 8 9 10 Gallons - Ice Cream Price Midpoint Formula
  • 117. $0 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 1 2 3 4 5 6 7 8 9 10 Gallons - Ice Cream Price Midpoint Formula
  • 118. $0 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 1 2 3 4 5 6 7 8 9 10 Gallons - Ice Cream Price Midpoint Formula Q Q P P x
  • 119. $0 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 1 2 3 4 5 6 7 8 9 10 Gallons - Ice Cream Price Midpoint Formula Q Q P P x 2 4 1 3.5 x
  • 120. $0 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 1 2 3 4 5 6 7 8 9 10 Gallons - Ice Cream Price 7 4 Midpoint Formula Q Q P P x 2 4 1 3.5 x
  • 121. $0 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 1 2 3 4 5 6 7 8 9 10 Gallons - Ice Cream Price 7 4 1.75 Midpoint Formula Q Q P P x 2 4 1 3.5 x
  • 122. What determines Price Elasticity of Demand?
  • 123. Close Substitutes Passage of Time Luxuries vs. Necessities Definition of Market Share of Budget
  • 124. Close Substitutes
  • 125. Close Substitutes
  • 126. Close Substitutes Elastic >1
  • 127. Close Substitutes Elastic >1
  • 128. Close Substitutes Elastic >1 Inelastic <1
  • 129. Passage of Time
  • 130. Passage of Time More Time More Elastic
  • 131. Luxuries vs. Necessities
  • 132. Luxuries vs. Necessities Elastic
  • 133. Luxuries vs. Necessities Elastic Inelastic
  • 134. Definition of Market
  • 135. Definition of Market Elastic
  • 136. Definition of Market Elastic Inelastic
  • 137. Definition of Market Elastic Inelastic Demand for Gasoline in General
  • 138. Definition of Market Elastic Inelastic Demand for Gasoline in General Demand for Gasoline in Rexburg
  • 139. Share of the Budget Small Large
  • 140. Share of the Budget Inelastic Small Large
  • 141. Share of the Budget ElasticInelastic Small Large
  • 142. Price Elasticity and Total Revenue
  • 143. $0 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 1 2 3 4 5 6 7 8 9 10 Gallons - Gasoline Price Total Revenue TR = P x Q
  • 144. $0 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 1 2 3 4 5 6 7 8 9 10 Gallons - Gasoline Price Total Revenue TR = P x Q
  • 145. $0 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 1 2 3 4 5 6 7 8 9 10 Gallons - Gasoline Price Total Revenue TR = P x Q
  • 146. $0 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 1 2 3 4 5 6 7 8 9 10 Gallons - Gasoline Price $3.00 x 5 = $15 Total Revenue TR = P x Q
  • 147. $0 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 1 2 3 4 5 6 7 8 9 10 Gallons - Gasoline Price $6.00 x 4 = $24 $3.00 x 5 = $15 Total Revenue TR = P x Q
  • 148. $0 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 1 2 3 4 5 6 7 8 9 10 Gallons - Gasoline Price $6.00 x 4 = $24 $3.00 x 5 = $15 Lose Total Revenue TR = P x Q
  • 149. $0 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 1 2 3 4 5 6 7 8 9 10 Gallons - Gasoline Price $6.00 x 4 = $24 $3.00 x 5 = $15 Lose Gain Total Revenue TR = P x Q
  • 150. $0 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 1 2 3 4 5 6 7 8 9 10 Gallons - Gasoline Price $6.00 x 4 = $24 $3.00 x 5 = $15 Net Gain = $9 Lose Gain Total Revenue TR = P x Q
  • 151. $0 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 1 2 3 4 5 6 7 8 9 10 Gallons - Gasoline Price $6.00 x 4 = $24 $3.00 x 5 = $15 Inelastic (<1) Raising prices will increase total revenue Net Gain = $9 Lose Gain Total Revenue TR = P x Q
  • 152. $0 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 1 2 3 4 5 6 7 8 9 10 Gallons - Ice Cream Price Total Revenue TR = P x Q
  • 153. $0 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 1 2 3 4 5 6 7 8 9 10 Gallons - Ice Cream Price Total Revenue TR = P x Q
  • 154. $0 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 1 2 3 4 5 6 7 8 9 10 Gallons - Ice Cream Price Total Revenue TR = P x Q
  • 155. $0 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 1 2 3 4 5 6 7 8 9 10 Gallons - Ice Cream Price $3.00 x 5 = $15 Total Revenue TR = P x Q
  • 156. $0 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 1 2 3 4 5 6 7 8 9 10 Gallons - Ice Cream Price $4.00 x 3 = $12 $3.00 x 5 = $15 Total Revenue TR = P x Q
  • 157. $0 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 1 2 3 4 5 6 7 8 9 10 Gallons - Ice Cream Price $4.00 x 3 = $12 $3.00 x 5 = $15 Lose Total Revenue TR = P x Q
  • 158. $0 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 1 2 3 4 5 6 7 8 9 10 Gallons - Ice Cream Price $4.00 x 3 = $12 $3.00 x 5 = $15 Lose Gain Total Revenue TR = P x Q
  • 159. $0 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 1 2 3 4 5 6 7 8 9 10 Gallons - Ice Cream Price $4.00 x 3 = $12 $3.00 x 5 = $15 Net Gain = -$3 Lose Gain Total Revenue TR = P x Q
  • 160. $0 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 1 2 3 4 5 6 7 8 9 10 Gallons - Ice Cream Price $4.00 x 3 = $12 $3.00 x 5 = $15 Elastic (>1) Raising prices will decrease total revenue Net Gain = -$3 Lose Gain Total Revenue TR = P x Q
  • 161. Cross-Price Elasticity of Demand
  • 162. Cross-Price Elasticity of Demand % % QD P
  • 163. Cross-Price Elasticity of Demand % % QD P 1
  • 164. Cross-Price Elasticity of Demand % % QD P 1 2
  • 165. Cross-Price Elasticity of Demand Percentage Change in Quantity Demanded of one good Percentage Change in Price of another good % % QD P 1 2
  • 166. Cross-Price Elasticity of Demand 0 SubstitutesCompliments <0 >0 1. Calculate Elasticity 2. Compare to benchmark of 0
  • 167. % % QD1 P2
  • 168. % % QD1 P2 50%
  • 169. % % QD1 P2 35% 50%
  • 170. % % QD1 P2 35% 50% =.7
  • 171. % % QD1 P2 35% 50% =.7 >0
  • 172. % % QD1 P2 35% 50% =.7 >0 Substitutes
  • 173. % % QD1 P2
  • 174. % % QD1 P2 50%
  • 175. % % QD1 P2 -40% 50%
  • 176. % % QD1 P2 -40% 50% =-.8
  • 177. % % QD1 P2 -40% 50% =-.8 <0
  • 178. % % QD1 P2 -40% 50% =-.8 <0 Compliments
  • 179. Cross-Price Elasticity of Demand 0 SubstitutesCompliments <0 >0 % % QD P 1 2
  • 180. Income Elasticity of Demand Normal, Inferior, or Luxury?
  • 181. Percentage Change in Quantity Demanded Percentage Change in Income Income Elasticity of Demand % % QD I
  • 182. Income Elasticity of Demand 0 LuxuryInferior <0 >1 1. Calculate Elasticity 2. Compare to benchmark of 0 and 1 1 Normal
  • 183. % % QD I
  • 184. % % QD I 20%
  • 185. % % QD I 10% 20%
  • 186. % % QD I 10% 20% =.5
  • 187. % % QD I 10% 20% =.5 >0 <1
  • 188. % % QD I 10% 20% =.5 >0 <1 Normal
  • 189. % % QD I
  • 190. % % QD I 20%
  • 191. % % QD I -50% 20%
  • 192. % % QD I -50% 20% =-2.5
  • 193. % % QD I -50% 20% =-2.5 <0
  • 194. % % QD I -50% 20% =-2.5 <0 Inferior
  • 195. % % QD I
  • 196. % % QD I 20%
  • 197. % % QD I 100% 20%
  • 198. % % QD I 100% 20% = 5
  • 199. % % QD I 100% 20% = 5 >1
  • 200. % % QD I 100% 20% = 5 >1 Luxury
  • 201. Income Elasticity of Demand 0 LuxuryInferior <0 >11 Normal % % QD I
  • 202. Price Elasticity of Supply
  • 203. Price Elasticity of Supply % %
  • 204. Price Elasticity of Supply % % QS
  • 205. Price Elasticity of Supply % % QS P
  • 206. Price Elasticity of Supply % % QS P Percentage Change in Quantity Supplied Percentage Change in Price
  • 207. Price Elasticity of Supply 1 ElasticInelastic <1 >1 1. Calculate Elasticity 2. Compare to benchmark of 1
  • 208. % % QS P
  • 209. % % QS P 20%
  • 210. % % QS P 10% 20%
  • 211. % % QS P 10% 20% =.5
  • 212. % % QS P 10% 20% =.5 <1
  • 213. % % QS P 10% 20% =.5 <1 Inelastic
  • 214. % % QS P
  • 215. % % QS P 20%
  • 216. % % QS P 40% 20%
  • 217. % % QS P 40% 20% = 2
  • 218. % % QS P 40% 20% = 2 >1
  • 219. % % QS P 40% 20% = 2 >1 Elastic
  • 220. Price Elasticity of Supply 1 ElasticInelastic <1 >1 % % QS P
  • 221. 1. Prices increase from $5.00 to $6.00. Quantity demanded decreases from 100 units to 80 units. What is the price elasticity of demand? Midpoint Formula What is the total revenue at $5.00 per unit? $5 x 100 = $500 What is the total revenue at $6.00 per unit? $6 x 80 = $480 ∆Q ∆PQ Px 20 190 5.50x 1.22110 90 = = =