SlideShare a Scribd company logo
1 of 29
Download to read offline
 
Chapter Outline 5 Elasticity Price Elasticity of Demand Slope and Elasticity Types of Elasticity Calculating Elasticities Calculating Percentage Changes Elasticity Is a Ratio of Percentages The Midpoint Formula Elasticity Changes along a Straight-Line   Demand Curve Elasticity and Total Revenue The Determinants of Demand Elasticity Availability of Substitutes The Importance of Being Unimportant The Time Dimension Other Important Elasticities Income Elasticity of Demand Cross-Price Elasticity of Demand Elasticity of Supply Looking Ahead Appendix: Point Elasticity
ELASTICITY elasticity   A general concept used to quantify the response in one variable when another variable changes.
PRICE ELASTICITY OF DEMAND SLOPE AND ELASTICITY FIGURE 5.1 Slope Is Not a Useful Measure of Responsiveness
PRICE ELASTICITY OF DEMAND price elasticity of demand   The ratio of the percentage of change in quantity demanded to the percentage of change in price; measures the responsiveness of demand to changes in price.
PRICE ELASTICITY OF DEMAND TYPES OF ELASTICITY perfectly inelastic demand   Demand in which quantity demanded does not respond at all to a change in price. Elastic -3.0 -30% +10% Bananas Unitarily elastic -1.0 -10% +10% Beef Inelastic -0.1 -1% +10% Basic telephone service Perfectly inelastic 0.0 ELASTICITY (%   Q D  ÷ %  P ) 0% % CHANGE IN QUANTITY DEMANDED (%   Q D ) +10% Insulin % CHANGE INPRICE (%   P ) PRODUCT TABLE 5.1  Hypothetical Demand Elasticities for Four Products
PRICE ELASTICITY OF DEMAND FIGURE 5.2 Perfectly Elastic and Perfectly Inelastic Demand Curves inelastic demand   Demand that responds somewhat, but not a great deal, to changes in price.  Inelastic demand always has a numerical value between zero and -1.
PRICE ELASTICITY OF DEMAND unitary elasticity   A demand relationship in which the percentage change in quantity of a product demanded is the same as the percentage change in price in absolute value (a demand elasticity of -1). A warning: You must be very careful about signs. Because it is generally understood that demand elasticities are negative (demand curves have a negative slope), they are often reported and discussed without the negative sign. For example, a technical paper might report that the demand for housing “appears to be inelastic with respect to price, or less than 1 (0.6).”  What the writer means is that the estimated elasticity is -.6, which is between zero and -1. Its absolute value is less than 1.
PRICE ELASTICITY OF DEMAND elastic demand   A demand relationship in which the percentage change in quantity demanded is larger in absolute value than the percentage change in price (a demand elasticity with an absolute value greater than 1). perfectly elastic demand   Demand in which quantity drops to zero at the slightest increase in price.
PRICE ELASTICITY OF DEMAND A good way to remember the difference between the two “perfect” elasticities is:
CALCULATING ELASTICITIES CALCULATING PERCENTAGE CHANGES To calculate percentage change in quantity demanded using the initial value as the base, the following formula is used:
CALCULATING ELASTICITIES We can calculate the percentage change in price in a similar way.  Once again, let us use the initial value of  P —that is,  P 1 —as the base for calculating the percentage. By using  P 1  as the base, the formula for calculating the percentage of change in  P  is simply:
CALCULATING ELASTICITIES Once all the changes in quantity demanded and price have been converted into percentages, calculating elasticity is a matter of simple division.  Recall the formal definition of elasticity: ELASTICITY IS A RATIO OF PERCENTAGES
CALCULATING ELASTICITIES THE MIDPOINT FORMULA midpoint formula   A more precise way of calculating percentages using the value halfway between  P 1  and  P 2  for the base in calculating the percentage change in price, and the value halfway between  Q 1  and  Q 2  as the base for calculating the percentage change in quantity demanded.
CALCULATING ELASTICITIES Using the point halfway between  P 1  and  P 2  as the base for calculating the percentage change in price, we get
CALCULATING ELASTICITIES By substituting the numbers from Figure 5.1(a): Next, Calculate Percentage Change in Price (%  P): PRICE ELASTICITY COMPARES THE PERCENTAGE CHANGE IN QUANTITY DEMANDED AND THE PERCENTAGE CHANGE IN PRICE: DEMAND IS ELASTIC By substituting the numbers from Figure 5.1(a): First, Calculate Percentage Change in Quantity Demanded (%  Q D ): TABLE 5.2  Calculating Price Elasticity with the Midpoint Formula
CALCULATING ELASTICITIES ELASTICITY CHANGES ALONG A STRAIGHT-LINE DEMAND CURVE FIGURE 5.3 Demand Curve for Lunch at the Office Dining Room 0 2 4 6 8 10 12 14 16 18 20 22 $11 10 9 8 7 6 5 4 3 2 1 0 QUANTITY DEMANDED (LUNCHES PER MONTH) PRICE (PER  LUNCH) TABLE 5.3  Demand Schedule for Office Dining Room Lunches
CALCULATING ELASTICITIES ELASTICITY AND TOTAL REVENUE TR  =  P  x  Q total revenue = price x quantity In any market,  P  x  Q  is total revenue ( TR ) received by producers: When price ( P ) declines, quantity demanded ( Q D ) increases.  The two factors,  P  and  Q D , move in opposite directions: Effects of price changes on quantity demanded:
CALCULATING ELASTICITIES Because total revenue is the product of  P  and  Q , whether  TR  rises or falls in response to a price increase depends on which is bigger, the percentage increase in price or the percentage decrease in quantity demanded. If the percentage decline in quantity demanded following a price increase is larger than the percentage increase in price, total revenue will fall. Effects of price increase on a product with inelastic demand: Effects of price increase on a product with inelastic demand:
CALCULATING ELASTICITIES The opposite is true for a price cut.  When demand is elastic, a cut in price increases total revenues: When demand is inelastic, a cut in price reduces total revenues: effect of price cut on a product with elastic demand: effect of price cut on a product with inelastic demand:
THE DETERMINANTS OF DEMAND ELASTICITY Perhaps the most obvious factor affecting demand elasticity is the availability of substitutes. AVAILABILITY OF SUBSTITUTES When an item represents a relatively small part of our total budget, we tend to pay little attention to its price. THE IMPORTANCE OF BEING UNIMPORTANT THE TIME DIMENSION The elasticity of demand in the short run may be very different from the elasticity of demand in the long run. In the longer run, demand is likely to become more elastic, or responsive, simply because households make adjustments over time and producers develop substitute goods.
OTHER IMPORTANT ELASTICITIES INCOME ELASTICITY OF DEMAND income elasticity of demand   Measures the responsiveness of demand to changes in income.
OTHER IMPORTANT ELASTICITIES CROSS-PRICE ELASTICITY OF DEMAND cross-price elasticity of demand   A measure of the response of the quantity of one good demanded to a change in the price of another good.
OTHER IMPORTANT ELASTICITIES ELASTICITY OF SUPPLY elasticity of supply   A measure of the response of quantity of a good supplied to a change in price of that good.  Likely to be positive in output markets.
OTHER IMPORTANT ELASTICITIES elasticity of labor supply   A measure of the response of labor supplied to a change in the price of labor.
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],inelastic demand midpoint formula perfectly elastic demand perfectly inelastic demand price elasticity of demand unitary elasticity REVIEW TERMS AND CONCEPTS
Appendix ,[object Object],POINT ELASTICITY (OPTIONAL) FIGURE 5A.1 Elasticity at a Point Along a Demand Curve
Appendix ,[object Object],Since the length of  CQ 1  is equal to  P 1 , we can write: By substituting we get:
Appendix FIGURE 5A.2 Point Elasticity Changes Along a Demand Curve

More Related Content

What's hot

Elasticity of demand
Elasticity of demandElasticity of demand
Elasticity of demandjyyothees mv
 
Factors affecting elastisity of demand
Factors affecting elastisity of demandFactors affecting elastisity of demand
Factors affecting elastisity of demandBIswajit Jena Btj
 
Elasticity of Demand
Elasticity of DemandElasticity of Demand
Elasticity of DemandRaza-Abdullah
 
Elasticity of Demand
Elasticity of Demand  Elasticity of Demand
Elasticity of Demand Renash Kvs
 
Types of price elasticity
Types of price elasticityTypes of price elasticity
Types of price elasticitySavio Pereira
 
Elasticity of Supply
Elasticity of SupplyElasticity of Supply
Elasticity of SupplyBrian Coil
 
Dinker Presentation on elasticity of demand
Dinker Presentation on elasticity of demandDinker Presentation on elasticity of demand
Dinker Presentation on elasticity of demandDinker Vaid
 
Elasticities of Demand and Supply and Application
Elasticities of Demand and Supply and ApplicationElasticities of Demand and Supply and Application
Elasticities of Demand and Supply and ApplicationKarl Obispo
 
Elasticity Of Supply Micro Economics ECO101
Elasticity Of Supply Micro Economics ECO101Elasticity Of Supply Micro Economics ECO101
Elasticity Of Supply Micro Economics ECO101Sabih Kamran
 
PRICE ELASTICITY OF SUPPLY WITH EXAMPLES
PRICE ELASTICITY OF SUPPLY WITH EXAMPLESPRICE ELASTICITY OF SUPPLY WITH EXAMPLES
PRICE ELASTICITY OF SUPPLY WITH EXAMPLESShahi Raz Akhtar
 
Ignou solved assignment eec 11 2014 to 2015 (demo)
Ignou solved assignment eec   11 2014 to 2015 (demo)Ignou solved assignment eec   11 2014 to 2015 (demo)
Ignou solved assignment eec 11 2014 to 2015 (demo)Kumar Nirmal Prasad
 
Ppt elasticity
Ppt elasticityPpt elasticity
Ppt elasticitypr1ka
 
Price, cross and income elasticity
Price, cross and income elasticityPrice, cross and income elasticity
Price, cross and income elasticitymattbentley34
 

What's hot (19)

Elasticity of demand
Elasticity of demandElasticity of demand
Elasticity of demand
 
Elasticity
ElasticityElasticity
Elasticity
 
Factors affecting elastisity of demand
Factors affecting elastisity of demandFactors affecting elastisity of demand
Factors affecting elastisity of demand
 
My elasticity
My elasticityMy elasticity
My elasticity
 
Elasticity of Demand
Elasticity of DemandElasticity of Demand
Elasticity of Demand
 
Elasticity of Demand
Elasticity of Demand  Elasticity of Demand
Elasticity of Demand
 
Elasticity of demand
Elasticity of demandElasticity of demand
Elasticity of demand
 
Types of price elasticity
Types of price elasticityTypes of price elasticity
Types of price elasticity
 
Elasticity of Supply
Elasticity of SupplyElasticity of Supply
Elasticity of Supply
 
Dinker Presentation on elasticity of demand
Dinker Presentation on elasticity of demandDinker Presentation on elasticity of demand
Dinker Presentation on elasticity of demand
 
Elasticity Ppt
Elasticity  PptElasticity  Ppt
Elasticity Ppt
 
Elasticities of Demand and Supply and Application
Elasticities of Demand and Supply and ApplicationElasticities of Demand and Supply and Application
Elasticities of Demand and Supply and Application
 
Elasticity Of Supply Micro Economics ECO101
Elasticity Of Supply Micro Economics ECO101Elasticity Of Supply Micro Economics ECO101
Elasticity Of Supply Micro Economics ECO101
 
The use of elasticity
The use of elasticityThe use of elasticity
The use of elasticity
 
PRICE ELASTICITY OF SUPPLY WITH EXAMPLES
PRICE ELASTICITY OF SUPPLY WITH EXAMPLESPRICE ELASTICITY OF SUPPLY WITH EXAMPLES
PRICE ELASTICITY OF SUPPLY WITH EXAMPLES
 
Ignou solved assignment eec 11 2014 to 2015 (demo)
Ignou solved assignment eec   11 2014 to 2015 (demo)Ignou solved assignment eec   11 2014 to 2015 (demo)
Ignou solved assignment eec 11 2014 to 2015 (demo)
 
Ppt elasticity
Ppt elasticityPpt elasticity
Ppt elasticity
 
Price, cross and income elasticity
Price, cross and income elasticityPrice, cross and income elasticity
Price, cross and income elasticity
 
Elasticity of demand
Elasticity of demandElasticity of demand
Elasticity of demand
 

Viewers also liked

Bec doms ppt on the elasticity of demand
Bec doms ppt on the elasticity of demandBec doms ppt on the elasticity of demand
Bec doms ppt on the elasticity of demandBabasab Patil
 
Assign On Elasticity Of Demand .Ppt
Assign On Elasticity Of Demand .PptAssign On Elasticity Of Demand .Ppt
Assign On Elasticity Of Demand .Pptguest55d4400
 
Types of elasticity of demand
Types of elasticity of demandTypes of elasticity of demand
Types of elasticity of demandNikhil Soares
 
Tutor2u - Price Elasticity of Demand
Tutor2u - Price Elasticity of DemandTutor2u - Price Elasticity of Demand
Tutor2u - Price Elasticity of Demandtutor2u
 
Elasticity Of Supply And Demand
Elasticity Of Supply And DemandElasticity Of Supply And Demand
Elasticity Of Supply And DemandKevin A
 

Viewers also liked (7)

Bec doms ppt on the elasticity of demand
Bec doms ppt on the elasticity of demandBec doms ppt on the elasticity of demand
Bec doms ppt on the elasticity of demand
 
Assign On Elasticity Of Demand .Ppt
Assign On Elasticity Of Demand .PptAssign On Elasticity Of Demand .Ppt
Assign On Elasticity Of Demand .Ppt
 
Types of elasticity of demand
Types of elasticity of demandTypes of elasticity of demand
Types of elasticity of demand
 
Price Elasticity of Demand
Price Elasticity of DemandPrice Elasticity of Demand
Price Elasticity of Demand
 
Elasticity Of Demand
Elasticity Of DemandElasticity Of Demand
Elasticity Of Demand
 
Tutor2u - Price Elasticity of Demand
Tutor2u - Price Elasticity of DemandTutor2u - Price Elasticity of Demand
Tutor2u - Price Elasticity of Demand
 
Elasticity Of Supply And Demand
Elasticity Of Supply And DemandElasticity Of Supply And Demand
Elasticity Of Supply And Demand
 

Similar to Case Econ08 Ppt 05

3. elasticity of demand and supply
3. elasticity of demand and supply3. elasticity of demand and supply
3. elasticity of demand and supplyShivam Taneja
 
Elasticity Of Demand And Supply
Elasticity Of Demand And SupplyElasticity Of Demand And Supply
Elasticity Of Demand And Supplymandalina landy
 
Elasticity of Demand - Concept and Measurements
Elasticity of Demand - Concept and MeasurementsElasticity of Demand - Concept and Measurements
Elasticity of Demand - Concept and MeasurementsSadia Tasnim
 
ElasticityofDemandSuply.ppt
ElasticityofDemandSuply.pptElasticityofDemandSuply.ppt
ElasticityofDemandSuply.pptBobMarshell1
 
Relationship bw quantity demanded and total revenue of the firm depending on...
Relationship bw quantity demanded and  total revenue of the firm depending on...Relationship bw quantity demanded and  total revenue of the firm depending on...
Relationship bw quantity demanded and total revenue of the firm depending on...ZoyaRajpoot9
 
Assignment on elacticity of demand
Assignment on elacticity of demandAssignment on elacticity of demand
Assignment on elacticity of demandEHSAN KHAN
 
Chapter 4 Measure of Response Elasticities from Microeconomi.docx
Chapter 4 Measure of Response Elasticities from Microeconomi.docxChapter 4 Measure of Response Elasticities from Microeconomi.docx
Chapter 4 Measure of Response Elasticities from Microeconomi.docxrobertad6
 
ELASTICITY OF DEMAND AND SUPPLY
ELASTICITY OF DEMAND AND SUPPLYELASTICITY OF DEMAND AND SUPPLY
ELASTICITY OF DEMAND AND SUPPLYSalahudin Ansari
 
Micro Economics Elasticity
Micro Economics ElasticityMicro Economics Elasticity
Micro Economics ElasticityAvijeet Tulsiani
 
Elasticity of Demand ppt Ravneet.pptx
Elasticity of Demand ppt Ravneet.pptxElasticity of Demand ppt Ravneet.pptx
Elasticity of Demand ppt Ravneet.pptxHarshRamani16
 
2.4 concepts of elasticity and use of labour demand elasticity.
2.4 concepts of elasticity and use of labour demand elasticity.2.4 concepts of elasticity and use of labour demand elasticity.
2.4 concepts of elasticity and use of labour demand elasticity.abir hossain
 
2Elasticity Analysis.pdf
2Elasticity Analysis.pdf2Elasticity Analysis.pdf
2Elasticity Analysis.pdfAntonWadea
 
2Elasticity Analysis.pdf
2Elasticity Analysis.pdf2Elasticity Analysis.pdf
2Elasticity Analysis.pdfELECTRICEGYPT
 
Elasticity of demand
Elasticity of demandElasticity of demand
Elasticity of demandravi kant
 

Similar to Case Econ08 Ppt 05 (20)

3. elasticity of demand and supply
3. elasticity of demand and supply3. elasticity of demand and supply
3. elasticity of demand and supply
 
Elasticity Of Demand And Supply
Elasticity Of Demand And SupplyElasticity Of Demand And Supply
Elasticity Of Demand And Supply
 
Elasticity of Demand - Concept and Measurements
Elasticity of Demand - Concept and MeasurementsElasticity of Demand - Concept and Measurements
Elasticity of Demand - Concept and Measurements
 
ElasticityofDemandSuply.ppt
ElasticityofDemandSuply.pptElasticityofDemandSuply.ppt
ElasticityofDemandSuply.ppt
 
price elasticity of Demand ppt.pptx
price elasticity of Demand ppt.pptxprice elasticity of Demand ppt.pptx
price elasticity of Demand ppt.pptx
 
Elasticity of demand
Elasticity of demandElasticity of demand
Elasticity of demand
 
Group 9 ppt
Group 9 pptGroup 9 ppt
Group 9 ppt
 
Relationship bw quantity demanded and total revenue of the firm depending on...
Relationship bw quantity demanded and  total revenue of the firm depending on...Relationship bw quantity demanded and  total revenue of the firm depending on...
Relationship bw quantity demanded and total revenue of the firm depending on...
 
LESSON 5.pdf
LESSON 5.pdfLESSON 5.pdf
LESSON 5.pdf
 
Assignment on elacticity of demand
Assignment on elacticity of demandAssignment on elacticity of demand
Assignment on elacticity of demand
 
Chapter 4 Measure of Response Elasticities from Microeconomi.docx
Chapter 4 Measure of Response Elasticities from Microeconomi.docxChapter 4 Measure of Response Elasticities from Microeconomi.docx
Chapter 4 Measure of Response Elasticities from Microeconomi.docx
 
ELASTICITY OF DEMAND AND SUPPLY
ELASTICITY OF DEMAND AND SUPPLYELASTICITY OF DEMAND AND SUPPLY
ELASTICITY OF DEMAND AND SUPPLY
 
Micro Economics Elasticity
Micro Economics ElasticityMicro Economics Elasticity
Micro Economics Elasticity
 
Elasticity of Demand ppt Ravneet.pptx
Elasticity of Demand ppt Ravneet.pptxElasticity of Demand ppt Ravneet.pptx
Elasticity of Demand ppt Ravneet.pptx
 
2.4 concepts of elasticity and use of labour demand elasticity.
2.4 concepts of elasticity and use of labour demand elasticity.2.4 concepts of elasticity and use of labour demand elasticity.
2.4 concepts of elasticity and use of labour demand elasticity.
 
Chapter 20 elasticity of demand and supply
Chapter 20 elasticity of demand and supplyChapter 20 elasticity of demand and supply
Chapter 20 elasticity of demand and supply
 
2Elasticity Analysis.pdf
2Elasticity Analysis.pdf2Elasticity Analysis.pdf
2Elasticity Analysis.pdf
 
2Elasticity Analysis.pdf
2Elasticity Analysis.pdf2Elasticity Analysis.pdf
2Elasticity Analysis.pdf
 
Elasticity of demand
Elasticity of demandElasticity of demand
Elasticity of demand
 
Managerial economics
Managerial economics Managerial economics
Managerial economics
 

More from Amba Research (20)

Case Econ08 Ppt 16
Case Econ08 Ppt 16Case Econ08 Ppt 16
Case Econ08 Ppt 16
 
Case Econ08 Ppt 08
Case Econ08 Ppt 08Case Econ08 Ppt 08
Case Econ08 Ppt 08
 
Case Econ08 Ppt 11
Case Econ08 Ppt 11Case Econ08 Ppt 11
Case Econ08 Ppt 11
 
Case Econ08 Ppt 14
Case Econ08 Ppt 14Case Econ08 Ppt 14
Case Econ08 Ppt 14
 
Case Econ08 Ppt 12
Case Econ08 Ppt 12Case Econ08 Ppt 12
Case Econ08 Ppt 12
 
Case Econ08 Ppt 10
Case Econ08 Ppt 10Case Econ08 Ppt 10
Case Econ08 Ppt 10
 
Case Econ08 Ppt 15
Case Econ08 Ppt 15Case Econ08 Ppt 15
Case Econ08 Ppt 15
 
Case Econ08 Ppt 13
Case Econ08 Ppt 13Case Econ08 Ppt 13
Case Econ08 Ppt 13
 
Case Econ08 Ppt 07
Case Econ08 Ppt 07Case Econ08 Ppt 07
Case Econ08 Ppt 07
 
Case Econ08 Ppt 06
Case Econ08 Ppt 06Case Econ08 Ppt 06
Case Econ08 Ppt 06
 
Case Econ08 Ppt 04
Case Econ08 Ppt 04Case Econ08 Ppt 04
Case Econ08 Ppt 04
 
Case Econ08 Ppt 03
Case Econ08 Ppt 03Case Econ08 Ppt 03
Case Econ08 Ppt 03
 
Case Econ08 Ppt 02
Case Econ08 Ppt 02Case Econ08 Ppt 02
Case Econ08 Ppt 02
 
Case Econ08 Ppt 01
Case Econ08 Ppt 01Case Econ08 Ppt 01
Case Econ08 Ppt 01
 
pyton Notes9
pyton Notes9pyton Notes9
pyton Notes9
 
Notes8
Notes8Notes8
Notes8
 
Notes7
Notes7Notes7
Notes7
 
pyton Notes6
 pyton Notes6 pyton Notes6
pyton Notes6
 
pyton Notes1
pyton Notes1pyton Notes1
pyton Notes1
 
pyton Exam1 soln
 pyton Exam1 soln pyton Exam1 soln
pyton Exam1 soln
 

Recently uploaded

BBA 205 BUSINESS ENVIRONMENT UNIT I.pptx
BBA 205 BUSINESS ENVIRONMENT UNIT I.pptxBBA 205 BUSINESS ENVIRONMENT UNIT I.pptx
BBA 205 BUSINESS ENVIRONMENT UNIT I.pptxProf. Kanchan Kumari
 
Plant Tissue culture., Plasticity, Totipotency, pptx
Plant Tissue culture., Plasticity, Totipotency, pptxPlant Tissue culture., Plasticity, Totipotency, pptx
Plant Tissue culture., Plasticity, Totipotency, pptxHimansu10
 
2024.03.16 How to write better quality materials for your learners ELTABB San...
2024.03.16 How to write better quality materials for your learners ELTABB San...2024.03.16 How to write better quality materials for your learners ELTABB San...
2024.03.16 How to write better quality materials for your learners ELTABB San...Sandy Millin
 
Quantitative research methodology and survey design
Quantitative research methodology and survey designQuantitative research methodology and survey design
Quantitative research methodology and survey designBalelaBoru
 
EDD8524 The Future of Educational Leader
EDD8524 The Future of Educational LeaderEDD8524 The Future of Educational Leader
EDD8524 The Future of Educational LeaderDr. Bruce A. Johnson
 
3.14.24 The Selma March and the Voting Rights Act.pptx
3.14.24 The Selma March and the Voting Rights Act.pptx3.14.24 The Selma March and the Voting Rights Act.pptx
3.14.24 The Selma March and the Voting Rights Act.pptxmary850239
 
Certification Study Group - Professional ML Engineer Session 3 (Machine Learn...
Certification Study Group - Professional ML Engineer Session 3 (Machine Learn...Certification Study Group - Professional ML Engineer Session 3 (Machine Learn...
Certification Study Group - Professional ML Engineer Session 3 (Machine Learn...gdgsurrey
 
30-de-thi-vao-lop-10-mon-tieng-anh-co-dap-an.doc
30-de-thi-vao-lop-10-mon-tieng-anh-co-dap-an.doc30-de-thi-vao-lop-10-mon-tieng-anh-co-dap-an.doc
30-de-thi-vao-lop-10-mon-tieng-anh-co-dap-an.docdieu18
 
25 CHUYÊN ĐỀ ÔN THI TỐT NGHIỆP THPT 2023 – BÀI TẬP PHÁT TRIỂN TỪ ĐỀ MINH HỌA...
25 CHUYÊN ĐỀ ÔN THI TỐT NGHIỆP THPT 2023 – BÀI TẬP PHÁT TRIỂN TỪ ĐỀ MINH HỌA...25 CHUYÊN ĐỀ ÔN THI TỐT NGHIỆP THPT 2023 – BÀI TẬP PHÁT TRIỂN TỪ ĐỀ MINH HỌA...
25 CHUYÊN ĐỀ ÔN THI TỐT NGHIỆP THPT 2023 – BÀI TẬP PHÁT TRIỂN TỪ ĐỀ MINH HỌA...Nguyen Thanh Tu Collection
 
Alamkara theory by Bhamaha Indian Poetics (1).pptx
Alamkara theory by Bhamaha Indian Poetics (1).pptxAlamkara theory by Bhamaha Indian Poetics (1).pptx
Alamkara theory by Bhamaha Indian Poetics (1).pptxDhatriParmar
 
3.12.24 The Social Construction of Gender.pptx
3.12.24 The Social Construction of Gender.pptx3.12.24 The Social Construction of Gender.pptx
3.12.24 The Social Construction of Gender.pptxmary850239
 
AUDIENCE THEORY - PARTICIPATORY - JENKINS.pptx
AUDIENCE THEORY - PARTICIPATORY - JENKINS.pptxAUDIENCE THEORY - PARTICIPATORY - JENKINS.pptx
AUDIENCE THEORY - PARTICIPATORY - JENKINS.pptxiammrhaywood
 
Auchitya Theory by Kshemendra Indian Poetics
Auchitya Theory by Kshemendra Indian PoeticsAuchitya Theory by Kshemendra Indian Poetics
Auchitya Theory by Kshemendra Indian PoeticsDhatriParmar
 
POST ENCEPHALITIS case study Jitendra bhargav
POST ENCEPHALITIS case study  Jitendra bhargavPOST ENCEPHALITIS case study  Jitendra bhargav
POST ENCEPHALITIS case study Jitendra bhargavJitendra Bhargav
 
2024 March 11, Telehealth Billing- Current Telehealth CPT Codes & Telehealth ...
2024 March 11, Telehealth Billing- Current Telehealth CPT Codes & Telehealth ...2024 March 11, Telehealth Billing- Current Telehealth CPT Codes & Telehealth ...
2024 March 11, Telehealth Billing- Current Telehealth CPT Codes & Telehealth ...Marlene Maheu
 
Metabolism , Metabolic Fate& disorders of cholesterol.pptx
Metabolism , Metabolic Fate& disorders of cholesterol.pptxMetabolism , Metabolic Fate& disorders of cholesterol.pptx
Metabolism , Metabolic Fate& disorders of cholesterol.pptxDr. Santhosh Kumar. N
 
Material Remains as Source of Ancient Indian History & Culture.ppt
Material Remains as Source of Ancient Indian History & Culture.pptMaterial Remains as Source of Ancient Indian History & Culture.ppt
Material Remains as Source of Ancient Indian History & Culture.pptBanaras Hindu University
 

Recently uploaded (20)

BBA 205 BUSINESS ENVIRONMENT UNIT I.pptx
BBA 205 BUSINESS ENVIRONMENT UNIT I.pptxBBA 205 BUSINESS ENVIRONMENT UNIT I.pptx
BBA 205 BUSINESS ENVIRONMENT UNIT I.pptx
 
Plant Tissue culture., Plasticity, Totipotency, pptx
Plant Tissue culture., Plasticity, Totipotency, pptxPlant Tissue culture., Plasticity, Totipotency, pptx
Plant Tissue culture., Plasticity, Totipotency, pptx
 
2024.03.16 How to write better quality materials for your learners ELTABB San...
2024.03.16 How to write better quality materials for your learners ELTABB San...2024.03.16 How to write better quality materials for your learners ELTABB San...
2024.03.16 How to write better quality materials for your learners ELTABB San...
 
Quantitative research methodology and survey design
Quantitative research methodology and survey designQuantitative research methodology and survey design
Quantitative research methodology and survey design
 
EDD8524 The Future of Educational Leader
EDD8524 The Future of Educational LeaderEDD8524 The Future of Educational Leader
EDD8524 The Future of Educational Leader
 
3.14.24 The Selma March and the Voting Rights Act.pptx
3.14.24 The Selma March and the Voting Rights Act.pptx3.14.24 The Selma March and the Voting Rights Act.pptx
3.14.24 The Selma March and the Voting Rights Act.pptx
 
Certification Study Group - Professional ML Engineer Session 3 (Machine Learn...
Certification Study Group - Professional ML Engineer Session 3 (Machine Learn...Certification Study Group - Professional ML Engineer Session 3 (Machine Learn...
Certification Study Group - Professional ML Engineer Session 3 (Machine Learn...
 
30-de-thi-vao-lop-10-mon-tieng-anh-co-dap-an.doc
30-de-thi-vao-lop-10-mon-tieng-anh-co-dap-an.doc30-de-thi-vao-lop-10-mon-tieng-anh-co-dap-an.doc
30-de-thi-vao-lop-10-mon-tieng-anh-co-dap-an.doc
 
25 CHUYÊN ĐỀ ÔN THI TỐT NGHIỆP THPT 2023 – BÀI TẬP PHÁT TRIỂN TỪ ĐỀ MINH HỌA...
25 CHUYÊN ĐỀ ÔN THI TỐT NGHIỆP THPT 2023 – BÀI TẬP PHÁT TRIỂN TỪ ĐỀ MINH HỌA...25 CHUYÊN ĐỀ ÔN THI TỐT NGHIỆP THPT 2023 – BÀI TẬP PHÁT TRIỂN TỪ ĐỀ MINH HỌA...
25 CHUYÊN ĐỀ ÔN THI TỐT NGHIỆP THPT 2023 – BÀI TẬP PHÁT TRIỂN TỪ ĐỀ MINH HỌA...
 
Least Significance Difference:Biostatics and Research Methodology
Least Significance Difference:Biostatics and Research MethodologyLeast Significance Difference:Biostatics and Research Methodology
Least Significance Difference:Biostatics and Research Methodology
 
Alamkara theory by Bhamaha Indian Poetics (1).pptx
Alamkara theory by Bhamaha Indian Poetics (1).pptxAlamkara theory by Bhamaha Indian Poetics (1).pptx
Alamkara theory by Bhamaha Indian Poetics (1).pptx
 
3.12.24 The Social Construction of Gender.pptx
3.12.24 The Social Construction of Gender.pptx3.12.24 The Social Construction of Gender.pptx
3.12.24 The Social Construction of Gender.pptx
 
AUDIENCE THEORY - PARTICIPATORY - JENKINS.pptx
AUDIENCE THEORY - PARTICIPATORY - JENKINS.pptxAUDIENCE THEORY - PARTICIPATORY - JENKINS.pptx
AUDIENCE THEORY - PARTICIPATORY - JENKINS.pptx
 
Auchitya Theory by Kshemendra Indian Poetics
Auchitya Theory by Kshemendra Indian PoeticsAuchitya Theory by Kshemendra Indian Poetics
Auchitya Theory by Kshemendra Indian Poetics
 
POST ENCEPHALITIS case study Jitendra bhargav
POST ENCEPHALITIS case study  Jitendra bhargavPOST ENCEPHALITIS case study  Jitendra bhargav
POST ENCEPHALITIS case study Jitendra bhargav
 
2024 March 11, Telehealth Billing- Current Telehealth CPT Codes & Telehealth ...
2024 March 11, Telehealth Billing- Current Telehealth CPT Codes & Telehealth ...2024 March 11, Telehealth Billing- Current Telehealth CPT Codes & Telehealth ...
2024 March 11, Telehealth Billing- Current Telehealth CPT Codes & Telehealth ...
 
Metabolism , Metabolic Fate& disorders of cholesterol.pptx
Metabolism , Metabolic Fate& disorders of cholesterol.pptxMetabolism , Metabolic Fate& disorders of cholesterol.pptx
Metabolism , Metabolic Fate& disorders of cholesterol.pptx
 
Material Remains as Source of Ancient Indian History & Culture.ppt
Material Remains as Source of Ancient Indian History & Culture.pptMaterial Remains as Source of Ancient Indian History & Culture.ppt
Material Remains as Source of Ancient Indian History & Culture.ppt
 
ANOVA Parametric test: Biostatics and Research Methodology
ANOVA Parametric test: Biostatics and Research MethodologyANOVA Parametric test: Biostatics and Research Methodology
ANOVA Parametric test: Biostatics and Research Methodology
 
t-test Parametric test Biostatics and Research Methodology
t-test Parametric test Biostatics and Research Methodologyt-test Parametric test Biostatics and Research Methodology
t-test Parametric test Biostatics and Research Methodology
 

Case Econ08 Ppt 05

  • 1.  
  • 2. Chapter Outline 5 Elasticity Price Elasticity of Demand Slope and Elasticity Types of Elasticity Calculating Elasticities Calculating Percentage Changes Elasticity Is a Ratio of Percentages The Midpoint Formula Elasticity Changes along a Straight-Line Demand Curve Elasticity and Total Revenue The Determinants of Demand Elasticity Availability of Substitutes The Importance of Being Unimportant The Time Dimension Other Important Elasticities Income Elasticity of Demand Cross-Price Elasticity of Demand Elasticity of Supply Looking Ahead Appendix: Point Elasticity
  • 3. ELASTICITY elasticity A general concept used to quantify the response in one variable when another variable changes.
  • 4. PRICE ELASTICITY OF DEMAND SLOPE AND ELASTICITY FIGURE 5.1 Slope Is Not a Useful Measure of Responsiveness
  • 5. PRICE ELASTICITY OF DEMAND price elasticity of demand The ratio of the percentage of change in quantity demanded to the percentage of change in price; measures the responsiveness of demand to changes in price.
  • 6. PRICE ELASTICITY OF DEMAND TYPES OF ELASTICITY perfectly inelastic demand Demand in which quantity demanded does not respond at all to a change in price. Elastic -3.0 -30% +10% Bananas Unitarily elastic -1.0 -10% +10% Beef Inelastic -0.1 -1% +10% Basic telephone service Perfectly inelastic 0.0 ELASTICITY (%  Q D ÷ %  P ) 0% % CHANGE IN QUANTITY DEMANDED (%  Q D ) +10% Insulin % CHANGE INPRICE (%  P ) PRODUCT TABLE 5.1 Hypothetical Demand Elasticities for Four Products
  • 7. PRICE ELASTICITY OF DEMAND FIGURE 5.2 Perfectly Elastic and Perfectly Inelastic Demand Curves inelastic demand Demand that responds somewhat, but not a great deal, to changes in price. Inelastic demand always has a numerical value between zero and -1.
  • 8. PRICE ELASTICITY OF DEMAND unitary elasticity A demand relationship in which the percentage change in quantity of a product demanded is the same as the percentage change in price in absolute value (a demand elasticity of -1). A warning: You must be very careful about signs. Because it is generally understood that demand elasticities are negative (demand curves have a negative slope), they are often reported and discussed without the negative sign. For example, a technical paper might report that the demand for housing “appears to be inelastic with respect to price, or less than 1 (0.6).” What the writer means is that the estimated elasticity is -.6, which is between zero and -1. Its absolute value is less than 1.
  • 9. PRICE ELASTICITY OF DEMAND elastic demand A demand relationship in which the percentage change in quantity demanded is larger in absolute value than the percentage change in price (a demand elasticity with an absolute value greater than 1). perfectly elastic demand Demand in which quantity drops to zero at the slightest increase in price.
  • 10. PRICE ELASTICITY OF DEMAND A good way to remember the difference between the two “perfect” elasticities is:
  • 11. CALCULATING ELASTICITIES CALCULATING PERCENTAGE CHANGES To calculate percentage change in quantity demanded using the initial value as the base, the following formula is used:
  • 12. CALCULATING ELASTICITIES We can calculate the percentage change in price in a similar way. Once again, let us use the initial value of P —that is, P 1 —as the base for calculating the percentage. By using P 1 as the base, the formula for calculating the percentage of change in P is simply:
  • 13. CALCULATING ELASTICITIES Once all the changes in quantity demanded and price have been converted into percentages, calculating elasticity is a matter of simple division. Recall the formal definition of elasticity: ELASTICITY IS A RATIO OF PERCENTAGES
  • 14. CALCULATING ELASTICITIES THE MIDPOINT FORMULA midpoint formula A more precise way of calculating percentages using the value halfway between P 1 and P 2 for the base in calculating the percentage change in price, and the value halfway between Q 1 and Q 2 as the base for calculating the percentage change in quantity demanded.
  • 15. CALCULATING ELASTICITIES Using the point halfway between P 1 and P 2 as the base for calculating the percentage change in price, we get
  • 16. CALCULATING ELASTICITIES By substituting the numbers from Figure 5.1(a): Next, Calculate Percentage Change in Price (%  P): PRICE ELASTICITY COMPARES THE PERCENTAGE CHANGE IN QUANTITY DEMANDED AND THE PERCENTAGE CHANGE IN PRICE: DEMAND IS ELASTIC By substituting the numbers from Figure 5.1(a): First, Calculate Percentage Change in Quantity Demanded (%  Q D ): TABLE 5.2 Calculating Price Elasticity with the Midpoint Formula
  • 17. CALCULATING ELASTICITIES ELASTICITY CHANGES ALONG A STRAIGHT-LINE DEMAND CURVE FIGURE 5.3 Demand Curve for Lunch at the Office Dining Room 0 2 4 6 8 10 12 14 16 18 20 22 $11 10 9 8 7 6 5 4 3 2 1 0 QUANTITY DEMANDED (LUNCHES PER MONTH) PRICE (PER LUNCH) TABLE 5.3 Demand Schedule for Office Dining Room Lunches
  • 18. CALCULATING ELASTICITIES ELASTICITY AND TOTAL REVENUE TR = P x Q total revenue = price x quantity In any market, P x Q is total revenue ( TR ) received by producers: When price ( P ) declines, quantity demanded ( Q D ) increases. The two factors, P and Q D , move in opposite directions: Effects of price changes on quantity demanded:
  • 19. CALCULATING ELASTICITIES Because total revenue is the product of P and Q , whether TR rises or falls in response to a price increase depends on which is bigger, the percentage increase in price or the percentage decrease in quantity demanded. If the percentage decline in quantity demanded following a price increase is larger than the percentage increase in price, total revenue will fall. Effects of price increase on a product with inelastic demand: Effects of price increase on a product with inelastic demand:
  • 20. CALCULATING ELASTICITIES The opposite is true for a price cut. When demand is elastic, a cut in price increases total revenues: When demand is inelastic, a cut in price reduces total revenues: effect of price cut on a product with elastic demand: effect of price cut on a product with inelastic demand:
  • 21. THE DETERMINANTS OF DEMAND ELASTICITY Perhaps the most obvious factor affecting demand elasticity is the availability of substitutes. AVAILABILITY OF SUBSTITUTES When an item represents a relatively small part of our total budget, we tend to pay little attention to its price. THE IMPORTANCE OF BEING UNIMPORTANT THE TIME DIMENSION The elasticity of demand in the short run may be very different from the elasticity of demand in the long run. In the longer run, demand is likely to become more elastic, or responsive, simply because households make adjustments over time and producers develop substitute goods.
  • 22. OTHER IMPORTANT ELASTICITIES INCOME ELASTICITY OF DEMAND income elasticity of demand Measures the responsiveness of demand to changes in income.
  • 23. OTHER IMPORTANT ELASTICITIES CROSS-PRICE ELASTICITY OF DEMAND cross-price elasticity of demand A measure of the response of the quantity of one good demanded to a change in the price of another good.
  • 24. OTHER IMPORTANT ELASTICITIES ELASTICITY OF SUPPLY elasticity of supply A measure of the response of quantity of a good supplied to a change in price of that good. Likely to be positive in output markets.
  • 25. OTHER IMPORTANT ELASTICITIES elasticity of labor supply A measure of the response of labor supplied to a change in the price of labor.
  • 26.
  • 27.
  • 28.
  • 29. Appendix FIGURE 5A.2 Point Elasticity Changes Along a Demand Curve