101 lecture 5

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101 lecture 5

  1. 1. Microeconomics Chapter 5 Elasticity
  2. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 37. Movement or Shift? Variable Change Movement Shift Price Income Related Goods Tastes Population and Demographics Expectations
  38. 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. 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. 40. Elasticity
  41. 41. Elasticity If I change one thing does another thing also change?
  42. 42. Elasticity
  43. 43. Elasticity A measure of how much one economic variable responds to changes in another economic variable
  44. 44. Percentage Change %
  45. 45. Percentage Change % New - Old Old
  46. 46. Percentage Change % New - Old Old Ignore units in the scale
  47. 47. Scales can be deceptive
  48. 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. 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. 50. Demand Schedule
  51. 51. Demand Schedule
  52. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 68. Price Elasticity of Demand
  69. 69. Price Elasticity of Demand
  70. 70. Price Elasticity of Demand % %
  71. 71. Price Elasticity of Demand % % QD
  72. 72. Price Elasticity of Demand % % QD P
  73. 73. Price Elasticity of Demand % % QD P Percentage Change in Quantity Demanded Percentage Change in Price
  74. 74. Price Elasticity of Demand 1 ElasticInelastic <1 >1 1. Calculate Elasticity 2.Take AbsoluteValue 3. Compare to benchmark of 1
  75. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 104. Midpoint Formula
  105. 105. Midpoint Formula Q Q P P
  106. 106. Midpoint Formula Delta Q over Q Bar Q Q P P
  107. 107. Midpoint Formula Delta Q over Q Bar Delta P over P Bar Q Q P P
  108. 108. Midpoint Formula Q Q P P
  109. 109. Midpoint Formula Q Q P P Trick: Flip denominator and multiply
  110. 110. Midpoint Formula Q Q P P Trick: Flip denominator and multiply
  111. 111. Midpoint Formula Q Q P P Trick: Flip denominator and multiply X =
  112. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 122. What determines Price Elasticity of Demand?
  123. 123. Close Substitutes Passage of Time Luxuries vs. Necessities Definition of Market Share of Budget
  124. 124. Close Substitutes
  125. 125. Close Substitutes
  126. 126. Close Substitutes Elastic >1
  127. 127. Close Substitutes Elastic >1
  128. 128. Close Substitutes Elastic >1 Inelastic <1
  129. 129. Passage of Time
  130. 130. Passage of Time More Time More Elastic
  131. 131. Luxuries vs. Necessities
  132. 132. Luxuries vs. Necessities Elastic
  133. 133. Luxuries vs. Necessities Elastic Inelastic
  134. 134. Definition of Market
  135. 135. Definition of Market Elastic
  136. 136. Definition of Market Elastic Inelastic
  137. 137. Definition of Market Elastic Inelastic Demand for Gasoline in General
  138. 138. Definition of Market Elastic Inelastic Demand for Gasoline in General Demand for Gasoline in Rexburg
  139. 139. Share of the Budget Small Large
  140. 140. Share of the Budget Inelastic Small Large
  141. 141. Share of the Budget ElasticInelastic Small Large
  142. 142. Price Elasticity and Total Revenue
  143. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 161. Cross-Price Elasticity of Demand
  162. 162. Cross-Price Elasticity of Demand % % QD P
  163. 163. Cross-Price Elasticity of Demand % % QD P 1
  164. 164. Cross-Price Elasticity of Demand % % QD P 1 2
  165. 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. 166. Cross-Price Elasticity of Demand 0 SubstitutesCompliments <0 >0 1. Calculate Elasticity 2. Compare to benchmark of 0
  167. 167. % % QD1 P2
  168. 168. % % QD1 P2 50%
  169. 169. % % QD1 P2 35% 50%
  170. 170. % % QD1 P2 35% 50% =.7
  171. 171. % % QD1 P2 35% 50% =.7 >0
  172. 172. % % QD1 P2 35% 50% =.7 >0 Substitutes
  173. 173. % % QD1 P2
  174. 174. % % QD1 P2 50%
  175. 175. % % QD1 P2 -40% 50%
  176. 176. % % QD1 P2 -40% 50% =-.8
  177. 177. % % QD1 P2 -40% 50% =-.8 <0
  178. 178. % % QD1 P2 -40% 50% =-.8 <0 Compliments
  179. 179. Cross-Price Elasticity of Demand 0 SubstitutesCompliments <0 >0 % % QD P 1 2
  180. 180. Income Elasticity of Demand Normal, Inferior, or Luxury?
  181. 181. Percentage Change in Quantity Demanded Percentage Change in Income Income Elasticity of Demand % % QD I
  182. 182. Income Elasticity of Demand 0 LuxuryInferior <0 >1 1. Calculate Elasticity 2. Compare to benchmark of 0 and 1 1 Normal
  183. 183. % % QD I
  184. 184. % % QD I 20%
  185. 185. % % QD I 10% 20%
  186. 186. % % QD I 10% 20% =.5
  187. 187. % % QD I 10% 20% =.5 >0 <1
  188. 188. % % QD I 10% 20% =.5 >0 <1 Normal
  189. 189. % % QD I
  190. 190. % % QD I 20%
  191. 191. % % QD I -50% 20%
  192. 192. % % QD I -50% 20% =-2.5
  193. 193. % % QD I -50% 20% =-2.5 <0
  194. 194. % % QD I -50% 20% =-2.5 <0 Inferior
  195. 195. % % QD I
  196. 196. % % QD I 20%
  197. 197. % % QD I 100% 20%
  198. 198. % % QD I 100% 20% = 5
  199. 199. % % QD I 100% 20% = 5 >1
  200. 200. % % QD I 100% 20% = 5 >1 Luxury
  201. 201. Income Elasticity of Demand 0 LuxuryInferior <0 >11 Normal % % QD I
  202. 202. Price Elasticity of Supply
  203. 203. Price Elasticity of Supply % %
  204. 204. Price Elasticity of Supply % % QS
  205. 205. Price Elasticity of Supply % % QS P
  206. 206. Price Elasticity of Supply % % QS P Percentage Change in Quantity Supplied Percentage Change in Price
  207. 207. Price Elasticity of Supply 1 ElasticInelastic <1 >1 1. Calculate Elasticity 2. Compare to benchmark of 1
  208. 208. % % QS P
  209. 209. % % QS P 20%
  210. 210. % % QS P 10% 20%
  211. 211. % % QS P 10% 20% =.5
  212. 212. % % QS P 10% 20% =.5 <1
  213. 213. % % QS P 10% 20% =.5 <1 Inelastic
  214. 214. % % QS P
  215. 215. % % QS P 20%
  216. 216. % % QS P 40% 20%
  217. 217. % % QS P 40% 20% = 2
  218. 218. % % QS P 40% 20% = 2 >1
  219. 219. % % QS P 40% 20% = 2 >1 Elastic
  220. 220. Price Elasticity of Supply 1 ElasticInelastic <1 >1 % % QS P
  221. 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 = = =

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