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.
  • Image Source: istockphotoes
  • 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

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

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