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Ec102 April 19

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Ec102 April 19

  1. 1. ELASTICITY<br />
  2. 2. QUIZ<br />1. Graph the demand and supply curves<br />in a single axis. Label properly.<br />2. Galunggong is an inferior good.<br />What happens to the demand for <br />galunggong when income falls?<br />
  3. 3. QUIZ<br />3. Luxury goods are a special kind of<br />inferior goods called Giffen goods. People buy <br />them for their value. If the price of Giffen<br />goods increase, what happens to the demand?<br />4. Is the demand for rice price inelastic or <br />price elastic?<br />
  4. 4. QUIZ<br />5. Draw a perfectly elastic demand curve.<br />BONUS: A VERY famous golfer who was <br />an Eco major in Stanford University<br />but did not finish his degree.<br />
  5. 5. PRICE ELASTICITY OF DEMAND<br />How much QD responds to ΔP<br />Elastic – responds substantially<br />Inelastic – responds only slightly<br />
  6. 6. PRICE ELASTICITY OF DEMAND<br />Value may sometimes be negative<br />PED > 1, Elastic, flatter<br />PED < 1, Inelastic, steeper<br />
  7. 7. PRICE ELASTICITY OF DEMAND<br />Example: Yemayhem yoyos became <br />exceedingly popular after the P2.00 <br />price fell by P0.10. At least, sales rose <br />from 110 to 118 units. What was the <br />price elasticity of the product?<br />
  8. 8. PRICE ELASTICITY OF DEMAND<br />Determinants<br />Availability of close substitutes<br />Necessities vs. Luxuries<br />Definition of market<br />Time horizon<br />
  9. 9. PRICE ELASTICITY OF DEMAND<br />
  10. 10. PRICE ELASTICITY OF DEMAND<br />
  11. 11. PRICE ELASTICITY OF DEMAND<br />
  12. 12. PRICE ELASTICITY OF DEMAND<br />
  13. 13. PRICE ELASTICITY OF DEMAND<br />
  14. 14. PRICE ELASTICITY OF DEMAND<br />
  15. 15. TOTAL REVENUE<br />Total Revenue = PQ<br />Increases in Price<br />Inelastic = increase in revenue<br />Elastic = decrease in revenue<br />
  16. 16. TOTAL REVENUE IN A LINEAR DEMAND CURVE<br />Low price, high quantity = inelastic<br />Increase in price  increase in revenue<br />High price, low quantity = elastic<br />Increase in price  decrease in revenue<br />
  17. 17. OTHER DEMAND ELASTICITIES<br />Income Elasticity of Demand<br />Responsiveness of demand to changes<br /> in income<br />
  18. 18. OTHER DEMAND ELASTICITIES<br />Normal Goods – Positive<br />Inferior – Negative<br />Necessity (Price Inel) – small income el<br />Luxury (Price el) – large income el<br />
  19. 19. OTHER DEMAND ELASTICITIES<br />Cross-price elasticity of demand<br />Responsiveness of demand to changes<br /> in the price of another good<br />
  20. 20. OTHER DEMAND ELASTICITIES<br />Substitutes – positive<br />Complements - negative<br />
  21. 21. PRICE ELASTICITYOF SUPPLY<br />How much QS changes as a result of <br /> a change in price<br />
  22. 22. PRICE ELASTICITYOF SUPPLY<br />When banana prices decreased from <br />P15 to P9 per box, production fell <br />from 8M to 6M boxes per month. <br />Calculate the price elasticity of supply <br />For banana producers.<br />
  23. 23. PRICE ELASTICITY OF SUPPLY<br />Determinants<br />Flexibility of sellers to change prod’n<br />Examples:<br />Rice<br />Home made cookies<br />Condominiums<br />More elastic in the long run<br />
  24. 24. APPLICATION<br />P increased but Q decreased<br />Total Revenue decreases<br />Are farmers better off?<br />Why still adopt it?<br />Farmers have no choice<br />
  25. 25. APPLICATION<br />New discovery of better strain of rice<br />Increase in production<br />Result in supply?<br />Demand for rice is price inelastic<br />Supply for rice is ..?<br />

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