ECON_2306 => Lecture 4 Slides

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Unformatted text preview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lasticity Elasticity of demand measures how much the quantity demanded changes with a given change in price of the item, change in consumers’ income, or change change in price of related product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alculating Percentage Changes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lasticity is a Ratio of Percentages Y&.#(%**(,9#(.9%&G#+(-&(SD%&,-,/('#$%&'#'(%&'(:1-.#(9%H#(I##&( .3&H#1,#'(-&,3(:#1.#&,%G#+;(.%*.D*%,-&G(#*%+,-.-,/(-+(%($%,,#1(3=( +-$:*#('-H-+-3&M((\#.%**(,9#(=31$%*('#=-&-,-3&(3=(#*%+,-.-,/7 K(.9%&G#(-&(SD%&,-,/('#$%&'#' K(.9%&G#(-&(:1-.# K ( .9%&G# (-&( :1-.# ( ( .9%&G# (-&( :1-.# (W( !BBK P! 01-.#(#*%+,-.-,/(3=('#$%&'(8):N)'> ( ( PA (C( P! (W(!BBK P! [ ] 01-&.-:*#+(3=(?-.13#.3&3$-.+;@0((AB!B 01-&.-:*#+(3=(?-.13#.3&3$-.+;@0((AB!B A 4%*.D*%,-&G()*%+,-.-,-#+ The Midpoint Formula Midpoint formula O&3,9#1(P%/(3=(.%*.D*%,-&G( :#1.#&,%G#+(-+(D+-&G(,9#(H%*D#(9%*=P%/(I#,P##&(P! %&'(PA =31(,9#(I%+#(-& .%*.D*%,-&G(,9#(:#1.#&,%G#(.9%&G#(-&(:1-.#;(%&'(,9#(H%*D#( 9%*=P%/(I#,P##&(Q! %&'(QA %+(,9#(I%+#(=31(.%*.D*%,-&G(,9#( :#1.#&,%G# .9%&G#(-&(SD%&,-,/('#$%&'#'M K (.9%&G# (-&( SD%&,-,/( '#$%&'#' ( (( .9%&G# (-&( SD%&,-,/( '#$%&'#' 8 Q ! ( (Q A > (N( A (W( !BBK 4%*.D*%,-&G()*%+,-.-,-#+ 4%*.D*%,-&G()*%+,-.-,-#+ _+-&G(,9#(:3-&,(9%*=P%/(I#,P##&(P! %&' PA %+(,9#(I%+#(=31( .%*.D*%,-&G(,9#(:#1.#&,%G#(.9%&G#(-&(:1-.#; P#(G#, K (.9%&G# (-&( :1-.# ( ( ( .9%&G# (-&( :1-.# (W( !BBK 8 P! ( ( PA > (N( A PA (C( P! (W( !BBK 8 P! ( ( PA > (N( A ( QA (C(Q! (W(!BBK 8Q!( (QA >(N(A ^ 01-&.-:*#+(3=(?-.13#.3&3$-.+;@0((AB!B !B 01-&.-:*#+(3=(?-.13#.3&3$-.+;@0((AB!B 43$:D,-&G(01-.#()*%+,-.-,/7()W%$:*# 43$:D,-&G(01-.#()*%+,-.-,/7()W%$:*# Computing Percentage Changes and Elasticity Old Price Quantity `AMBB !BB Q9#(01-.#()*%+,-.-,/(3=("#$%&' 01-.#()*%+,-.-,/(8):N)'>(%&'(,9#("#$%&'(4D1H# Elasticity and Demand Curves New `AMAB ]U Initial Value Method 0#1.M(.9%&G#7(!BK(F(`BMAB(N(`AMBB 0#1.#&,(.9%&G#7(15% F(!U(N(!BB Elasticity: 1.5 = 15% / 10% 1.5 15% 10% Midpoint Midpoint value method method 0#1.#&,(.9%&G#7(^MUAK(F(BMAB(N( AM!B 0#1.#&,(.9%&G#7(!VMAAK(F(15 N( ^AMU Elasticity: Elasticity: 1.70 = 16.22% / 9.52% • elastic demand The price elasticity of demand is greater than one. The midpoint method measures the percentage changes more precisely, so we get a more precise measure of price elasticity. Ep/Ed = Percentage Change in Quantity Demanded / Percentage Change in Price =16.22%/9.52%=1.70 01-&.-:*#+(3=(?-.13#.3&3$-.+;@0((AB!B !! <#.%D+#(3=(,9#(-&H#1+#(1#*%,-3&+9-:( I#,P##&(:1-.#(%&'(SD%&,-,/('#$%&'#';(,9#( %.,D%*(#*%+,-.-,/(3=('#$%&'(P-**(I#(%( &#G%,-H#(&D$I#1M((a3P#H#1;(P#(-G&31#(,9#( $-&D+(+-G&(%&'(D+#(,9#(%I+3*D,#(H%*D#(3=( I3,9(:#1.#&,%G#(.9%&G#+M( !A 01-&.-:*#+(3=(?-.13#.3&3$-.+;@0((AB!B - [ ( (Q2 - Q1) / Q1 ) * 100 ] ––––––––––––––––––––––– [ ( (P2 - P1) / P1 ) * 100 ] ========================= [ ( (12 - 20) / 20 ) * 100 ] ––––––––––––––––––––– [ ( (6 - 5) / 5 ) * 100 ] ========================= [ ( 40% ) / 20% ] ========================= 2 R Q9#(01-.#()*%+,-.-,/(3=("#$%&' 01-.#()*%+,-.-,/(%&'(,9#("#$%&'(4D1H# Elasticity and Demand Curves Q9#(01-.#()*%+,-.-,/(3=("#$%&' 01-.#()*%+,-.-,/(%&'(,9#("#$%&'(4D1H# Elasticity and Demand Curves • inelastic demand The price elasticity of demand is less than one. • unit elastic demand The price elasticity of demand is one. !R 01-&.-:*#+(3=(?-.13#.3&3$-.+;@0((AB!B 01-&.-:*#+(3=(?-.13#.3&3$-.+;@0((AB!B !6 Q9#(01-.#()*%+,-.-,/(3=("#$%&' 2=(,9#(.3#==-.-#&,(3=(#*%+,-.-,/(3=('#$%&'(-+(%(&D$I#1(G1#%,#1(,9%&(3&#;(P#(+%/( '#$%&'(-+(#*%+,-.b(-=(,9#(.3#==-.-#&,(-+(*#++(,9%&(3&#;(P#(+%/('#$%&'(-+(-&#*%+,-.M( 2&(3,9#1(P31'+;(,9#(SD%&,-,/('#$%&'#'(-+(c1#*%,-H#*/(1#+:3&+-H#d(P9#&( )'N):(-+(G1#%,#1(,9%&(!(%&'(c1#*%,-H#*/(D&1#+:3&+-H#d(P9#&(-,(-+(*#++(,9%&( !M O(+:#.-%*(.%+#(-+(-=(,9#(.3#==-.-#&,(#SD%*+(3&#b(,9-+(-+(.%**#'(D&-,( #*%+,-.-,/M( 2&#*%+,-.('#$%&'('3#+(&3,($#%&(,9%,(.3&+D$#1+(%1#(.3$:*#,#*/(D&1#+:3&+-H#M(( Q9-+(#W,1#$#(+-,D%,-3&(.%**#'(:#1=#.,*/(-&#*%+,-.('#$%&'(P3D*'(I#(H#1/(1%1#;(%&'( ,9#('#$%&'(.D1H#(P3D*'(I#(H#1,-.%*M 5-e#P-+#;(#*%+,-.('#$%&'('3#+(&3,($#%&(.3&+D$#1+(%1#(.3$:*#,#*/(1#+:3&+-H#( ,3(%(:1-.#(.9%&G#M((Q9-+(#W,1#$#(+-,D%,-3&;(-&(P9-.9(%(+$%**(:1-.#(1#'D.,-3&(P3D*'( .%D+#(ID/#1+(,3(-&.1#%+#(,9#-1(:D1.9%+#+(=13$(f#13(,3(%**(,9%,(-,(-+(:3++-I*#(,3( 3I,%-&;(-+(:#1=#.,*/(#*%+,-.('#$%&';(%&'(,9#('#$%&'(.D1H#(P3D*'(I#(931-f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e( P9#&(#*%+,-.-,/(3=('#$%&'( #SD%*+(!M( ![ 01-&.-:*#+(3=(?-.13#.3&3$-.+;@0((AB!B 01-&.-:*#+(3=(?-.13#.3&3$-.+;@0((AB!B !] Q9#(01-.#()*%+,-.-,/(3=("#$%&' Marginal Revenue7(Q9#(.9%&G#(-&(,3,%*(1#H#&D#( 1#+D*,-&G(=13$(.9%&G-&G(SD%&,-,/(I/(3&#(D&-,M Q9#(01-.#()*%+,-.-,/(3=("#$%&' Q9#(01-.#()*%+,-.-,/(3=("#$%&' g31(%(+,1%-G9,C g31(%(+,1%-G9,C*-&#('#$%&'( .D1H#(,9#($%1G-&%*(1#H#&D#( .D1H#(-+(,P-.#(%+(+,##:(%+(,9#( '#$%&'M MR Q3,%*(\#H#&D# Quantity !^ 01-&.-:*#+(3=(?-.13#.3&3$-.+;@0((AB!B 01-&.-:*#+(3=(?-.13#.3&3$-.+;@0((AB!B AB U Q9#(01-.#()*%+,-.-,/(3=("#$%&' O,(,9#(:3-&,(P9#1#($%1G-&%*( 1#H#&D#(.13++#+(,9#(LC 1#H#&D#(.13++#+(,9#(LC%W-+;( ,9#('#$%&'(.D1H#(-+(D&-,%1/( #*%+,-.(%&'(,3,%*(1#H#&D#( 1#%.9#+(%($%W-$D$M 01#'-.,-&G(49%&G#+(-&(Q3,%*(\#H#&D# Price and Total Revenue with Elastic Demand Price 6MBB 6M6B Quantity of Tickets Sold !BB ]B Total Revenue `6BB `RUA O&(-&.1#%+#(-&(,9#(,-.e#,(:1-.#(I1-&G+( G33'(&#P+(%&'(I%'(&#P+7 h33'(&#P+M((J3D(G#,($31#($3&#/(=31( #%.9(,-.e#,(+3*'M <%'(&#P+M((J3D(+#**(=#P#1(,-.e#,+M A! 01-&.-:*#+(3=(?-.13#.3&3$-.+;@0((AB!B 01-&.-:*#+(3=(?-.13#.3&3$-.+;@0((AB!B AA STUDY UP TO THIS POINT!!!! Price Elasticity and Revenues Q\(F(0ij )*%+,-.("#$%&'(8k)'kl!>7((K jlK 0(C =31(%(:1-.#(-&.1#%+#(1#H#&D#( jlK 0(C '#.1#%+#+;(=31(%(:1-.#('#.1#%+#(1#H#&D#(-&.1#%+#+ _&-,%1/("#$%&'(8k)'kF!>7((K jFK 0(C &3(.9%&G#(-&(1#H#&D# 0(C 2&#*%+,-.("#$%&'(8k)'km!>7((K jmK 0(C =31(%(:1-.#(-&.1#%+#(1#H#&D#( jmK 0(C -&.1#%+#+;(=31(%(:1-.#('#.1#%+#(1#H#&D#('#.1#%+#+ Q9#(\#*%,-3&+9-:(<#,P##&(01-.#()*%+,-.-,/( %&'(Q3,%*(\#H#&D# The Relationship Between Price Elasticity and Total Revenue Total revenue The total amount of funds The received by a seller of a good or service, calculated by multiplying price per unit by the the number of units sold. AR 01-&.-:*#+(3=(?-.13#.3&3$-.+;@0((AB!B 01-&.-:*#+(3=(?-.13#.3&3$-.+;@0((AB!B A6 V Q9#(\#*%,-3&+9-:(<#,P##&(01-.#()*%+,-.-,/( %&'(Q3,%*(\#H#&D# )*%+,-.-,/(%&'(\#H#&D#(P-,9(%(5-&#%1("#$%&'(4D1H# BECAUSE . . . the decrease in quantity demanded is the proportionally G1#%,#1 than the increase in price. G1#%,#1 the the increase in quantity demanded is proportionally G1#%,#1 than the decrease in price. G1#%,#1 the decrease in quantity demanded is the proportionally +$%**#1 than the increase in price. +$%**#1 the the increase in quantity demanded is proportionally +$%**#1(than the decrease in price. +$%**#1( the decrease in quantity demanded is the proportionally ,9#(+%$#(%+ the increase in price. ,9#(+%$#(%+ the the increase in quantity demanded is proportionally ,9#(+%$#(%+ the decrease in price. ,9#(+%$#(%+ AU The Relationship between Price Elasticity and Revenue IF DEMAND IS . . . elastic elastic inelastic inelastic unitunit-elastic unitunit-elastic THEN . . . an an increase in price reduces revenue revenue a decrease in price increases decrease revenue revenue an an increase in price increases revenue revenue a decrease in price reduces decrease revenue revenue an an increase in price does not affect affect revenue a decrease in price does not decrease affect affect revenue 01-&.-:*#+(3=(?-.13#.3&3$-.+;@0((AB!B 01#'-.,-&G(49%&G#+(-&(Q3,%*(\#H#&D# Elasticity and Total Revenue Type of Demand Value of Price Elasticity of Demand Change in Quantity Versus Change in Price Effect of Higher Price Price on Total Revenue Revenue Effect of Lower Price Price on Total Revenue Revenue )*%+,-. h1#%,#1(,9%&(!MB 5%1G#1(:#1.#&,%G#( .9%&G#(-&(SD%&,-,/ "#.1#%+#+ 2&.1#%+#+ 2&#*%+,-. 5#++(,9%&(!MB @$%**#1(:#1.#&,%G#( .9%&G#(-&(SD%&,-,/ 2&.1#%+#+ "#.1#%+#+ _&-,%1/ #*%+,-. !MB @%$#(:#1.#&,%G#( "3#+(&3,(.9%&G# .9%&G#+(-&(SD%&,-,/(%&'( :1-.# "3#+(&3,(.9%&G# AV 01-&.-:*#+(3=(?-.13#.3&3$-.+;@0((AB!B Q9#(01-.#()*%+,-.-,/(3=("#$%&'(%&'(2,+( ?#%+D1#$#&, )*%+,-.("#$%&'(%&'(2&#*%+,-.("#$%&' Elastic Elastic demand Demand is elastic when the percentage change in quantity demanded is G1#%,#1 than the percentage change in price, G1#%,#1 than so the price elasticity is G1#%,#1 than 1 in absolute value. G1#%,#1 Inelastic Inelastic demand Demand is inelastic when the percentage change in quantity demanded is *#++ than the percentage change *#++ than in price, so the price elasticity is *#++ than 1 in absolute value. *#++ Unit-elastic Unit-elastic demand Demand is unit-elastic when the percentage Demand unit-elastic change in quantity demanded is #SD%*(,3 the percentage change in #SD%*(,3 the price, so the price elasticity is #SD%*(,3 –1. #SD%*(,3 A[ 01-&.-:*#+(3=(?-.13#.3&3$-.+;@0((AB!B Q9#("#,#1$-&%&,+(3=("#$%&'()*%+,-.-,/ Availability of Substitutes 0#19%:+(,9#($3+,(3IH-3D+(=%.,31(%==#.,-&G('#$%&'(#*%+,-.-,/(-+(,9#( %H%-*%I-*-,/(3=(+DI+,-,D,#+M The Importance of Being Unimportant X9#&(%&(-,#$(1#:1#+#&,+(%(1#*%,-H#*/(+$%**(:%1,(3=(3D1(,3,%*(ID'G#,;( P#(,#&'(,3(:%/(*-,,*#(%,,#&,-3&(,3(-,+(:1-.#M 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. - Cigarette - Cars A] 01-&.-:*#+(3=(?-.13#.3&3$-.+;@0((AB!B [ Q9#(01-.#()*%+,-.-,/(3=("#$%&' O(*3&GC O(*3&GC1D&('#$%&'(.D1H#(P-**( G#&#1%**/(I#($31#(#*%+,-.(,9%&(%( +931,C +931,C1D&(.D1H#M( O+(,9#(,-$#(:#1-3'(*#&G,9#&+( .3&+D$#1+(=-&'(P%/(,3(%'nD+,(,3( ,9#(:1-.#(.9%&G#;(H-%(+DI+,-,D,-3&( 31(+9-=,-&G(.3&+D$:,-3& Q9#(01-.#()*%+,-.-,/(3=("#$%&' Derived demand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income elasticity of demand $#%+D1#+(3=(,9#( 1#+:3&+-H#&#++(3=('#$%&'(,3(.9%&G#+(-&(-&.3$#;(-&'-.%,-&G(93P( $D.9($31#(31(*#++(3=(%(:%1,-.D*%1(:13'D.,(-+(:D1.9%+#'(%+(-&.3$#( .9%&G#+M 2 N) 2 ( ( K(49%&G#(-&(jD%&,-,/("#$%&'#' (W(!BBK K 49%&G#-& 2&.3$# R! 01-&.-:*#+(3=(?-.13#.3&3$-.+;@0((AB!B 01-&.-:*#+(3=(?-.13#.3&3$-.+;@0((AB!B RA Y,9#1()*%+,-.-,-#+(3=("#$%&' Q9#(cross elasticity of demand $#%+D1#+(,9#(1#+:3&+-H#&#++(3=( '#$%&'(,3(.9%&G#+(-&(,9#(:1-.#(3=(3,9#1(G33'+M K(49%&G#(-&(jD%&,-,/(3= L("#$%&'#' ( ( K 49%&G#-& 01 -.# 3= J Y,9#1(2$:31,%&,()*%+,-.-,-#+ Income Elasticity Of Demand Income elasticity of demand ?#%+D1#+(,9#( 1#+:3&+-H#&#++(3=('#$%&'(,3(.9%&G#+(-&(-&.3$#M 2&.3$#(#*%+,-.-,/(3=('#$%&'( ( K(.9%&G#(-&(SD%&,-,/('#$%&'#' K(.9%&G#(-&(-&.3$# :W (N() :W ( RR 01-&.-:*#+(3=(?-.13#.3&3$-.+;@0((AB!B 01-&.-:*#+(3=(?-.13#.3&3$-.+;@0((AB!B R6 Income Income Elasticity of Demand @-G&(-&'-.%,#+(&31$%*(31(-&=#1-31 lB(-$:*-#+(&31$%*(G33'M(2&.3$#(%&'(SD%&,-,/( lB(-$:*-#+(&31$%*(G33'M(2&.3$#(%&'(SD%&,-,/( $3H#(-&(,9#(+%$#('-1#.,-3&M( 2 2 mB(-$:*-#+(-&=#1-31(G33'M("#$%&'(=31(*-$-,#'( &D$I#1(3=(:13'D.,+(-+(+3$#,-$#+(,93DG9,(,3('#.*-&#(%+( -&.3$#(-&.1#%+#+;(I#.%D+#(.3&+D$#1+(1#:*%.#(,9#$(P-,9( $31#('#+-1%I*#(%*,#1&%,-H#+M( E31$%*(G33'+($%/(I#(&#.#++-,/(31(*DWD1/(M Income Elasticity of Demand "#$%&'(gD&.,-3& jF=80;0\;2;Q%+,#+;(o(3=(<D/#1+;)W:#.,%,-3&+;(%&'(+3(3&> 49%&G#(-&(2(.%D+#+(shift -&('#$%&'(%&'(,9#(+-f#(3=(,9-+( +9-=,('#:#&'+(3&(-&.3$#(#*%+,-.-,/M 2&.3$#(#*%+,-.-,/(3=('#$%&'($#%+D1#+(,9#( 1#+:3&+-H#&#++(3=('#$%&'(,3(.9%&G#+(-&(-&.3$#;( 93*'-&G(,9#(#==#.,(3=(%**(3,9#1(-&'#:#&'#&,(H%1-%I*#+( .3&+,%&,M( 2=( 2 l!(,9#&(,9-+(-+(*DWD1/(81#+:3&+-H#(,3(-&.3$#>M 2=(Bm( 2 m!(,9#&(,9-+(-+(&#.#++-,/(8D&1#+:3&+-H#(,3(-&.3$#>M RU 01-&.-:*#+(3=(?-.13#.3&3$-.+;@0((AB!B 01-&.-:*#+(3=(?-.13#.3&3$-.+;@0((AB!B RV ^ 413++(01-.#()*%+,-.-,/(8 Y,9#1(2$:31,%&,()*%+,-.-,-#+ CrossCross-price Elasticity Of Demand CrossCross-price elasticity of demand O($#%+D1#(3=(,9#( 1#+:3&+#(3=(,9#(SD%&,-,/(3=(3&#(G33'('#$%&'#'(,3(%( .9%&G#(-&(,9#(:1-.#(3=(%&3,9#1(G33'M 413++C:1-.#(#*%+,-.-,/(3=('#$%&'( ( K(.9%&G#(-&(SD%&,-,/(3=(Y ('#$%&'#' K(.9%&G#(-&(:1-.#(3=(X 0L 0LN)0L> 2&'-.%,#+(,9#(1#+:3&+-H#&#++(3=(,9#('#$%&'(=31(%(G33'(,3(.9%&G#+(-&( ,9#(:1-.#(3=(1#*%,#'(G33'M( a3P($D.9(,9#(:13'D.,('#$%&'(P-**(1-+#(31(=%**('D#(,3(%(.9%&G#(-&( ,9#(:1-.#(3=(%&3,9#1(=-1$T+(:13'D.,p 03-&,(.13++C 03-&,(.13++C:1-.#(#*%+,-.-,/7 0L 0L jJ N 0L j J 0L i 0L j J Where Where Y and X are two different products. R[ R] 01-&.-:*#+(3=(?-.13#.3&3$-.+;@0((AB!B 01-&.-:*#+(3=(?-.13#.3&3$-.+;@0((AB!B 413++(01-.#()*%+,-.-,/(8 413++(01-.#()*%+,-.-,/(8 0L 0L> )W%$:*# Q9#('%-*/('#$%&'(=31(2&H-G31%,#'(0)"(+93#+(-+(#+,-$%,#'(,3( I#(8<%/#;(ABBR> jL 0L 0J 2 OL !BB R0L 6 0J MB!2 A O L X9#1# ,9# :1-.# 3= G33' Lb ,9# :1-.# 3= G33' Jb %H#1%G# -&.3$# b ,9# %$3D&, 3= %'H#1,- +-& G +:#&, 3& +93#+ 8 L >M 6B 01-&.-:*#+(3=(?-.13#.3&3$-.+;@0((AB!B @-G&(-&'-.%,#+(1#*%,-3&+9-:(I#,P##&(,P3(G33'+ 0L 0L lB(-$:*-#+(G33'+(%1#(+DI+,-,D,#+M(Q9#(:1-.#(=31(3&#( G33'(%&'(,9#('#$%&'(=31(3,9#1(%*P%/+($3H#(-&(,9#(+%$#( '-1#.,-3&M 0L 0L m(B(-$:*-#+(G33'+(%1#(.3$:*#$#&,+M(01-.#(%&'( SD%&,-,/($3H#(-&(3::3+-,#('-1#.,-3&+(=31(.3$:*#$#&,%1/( G33'+(%&'(+#1H-.#+M 0L 0L B;(31(&#%1*/(f#13;(=31(D&1#*%,#'(G33'+(-&(P9-.9( .9%&G#+(-&(,9#(:1-.#(3=(3&#(G33'(9%H#(&3(#==#.,(-&('#$%&'( =31(,9#(+#.3&'M( R^ 01-&.-:*#+(3=(?-.13#.3&3$-.+;@0((AB!B F !B )W%$:*# @D::3+#(G33'(L(+#**+(%,(`AU(%(:%-1;(G33'(J(+#**+(%,(`RU;(,9#( .3$:%&/(D,-*-f#+(UB(D&-,+(3=(%'H#1,-+-&G;(%&'(%H#1%G#( .3&+D$#1(-&.3$#(-+(`AB;BBBM(4%*.D*%,#(%&'(-&,#1:1#,(,9#( 3P&(:1-.#;(.13++C 3P&(:1-.#;(.13++C:1-.#;(%&'(-&.3$#(#*%+,-.-,/(3=('#$%&'M( YP&(01-.#()*%+,-.-,/ 801-.#(#*%+,-.-,/(3=("#$%&';():N)'> : N): )W%$:*#7(YP&(01-.#()*%+,-.-,/ )W%$:*#7(YP&(01-.#()*%+,-.-,/ a3P#H#1;(P#('3&T,(e&3P(,9#(SD%&,-,/(.3&+D$#'(3=(LM(Q3(.%*.D*%,#;( P#(&##'(,3(+DI+,-,D,#(,9#(G-H#&(H%*D#+(3=(:1-.#+;(-&.3$#;(%&'( %'H#1,-+-&G(-&,3(,9#('#$%&'(#SD%,-3&(,3(G#, j L !BB R8AU> 68RU> MB!8 ABBBB> A8UB> VU D&-,+ Q9D+;(,9#(3P&(:1-.#(#*%+,-.-,/(3=('#$%&'(-+(G-H#&(I/( : jL 0L i 0L jL 0 Ri L jL Ri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jL 0J RU i 6i AM!U 0J jL VU jL 2 i 2 jL BMB!i ABBBB VU RMB] Q9-+(:3+-,-H#(.13++C Q9-+(:3+-,-H#(.13++C:1-.#(#*%+,-.-,/(+93P+(,9%,(G33'(J(-+(%( +DI+,-,D,#(=31(2&H-G31%,#'(0)"(+93#+M( Q9-+(&#G%,-H#(-&.3$#(#*%+,-.-,/(-&'-.%,#+(,9%,(2&H-G31%,#'( 0)"T+(+93#+(%1#(-&=#1-31(G33'+M 6R 01-&.-:*#+(3=(?-.13#.3&3$-.+;@0((AB!B 01-&.-:*#+(3=(?-.13#.3&3$-.+;@0((AB!B 66 !! Price Elasticity of Supply Percentage change in quantity supplied of good X Percentage change in the price of good X Price Elasticity of Supply The concept of price elasticity also applies to supply. The elasticity formula is the same as that for demand, but we must substitute the word “supplied” for the word “demanded” everywhere in the formula. Es = percentage change in quantity supplied/percentage change percentage change in quantity supplied/percentage change in price As with price elasticity of demand, the midpoints formula is more accurate. Es= Now, compare the immediate market period, the shortrun, and long run. 6U 01-&.-:*#+(3=(?-.13#.3&3$-.+;@0((AB!B 01-&.-:*#+(3=(?-.13#.3&3$-.+;@0((AB!B 6V Price Elasticity of Supply The ease of shifting resources between alternative uses is very important in price elasticity of supply because it will determine how much flexibility a producer has to adjust his or her output to a change in the price. The degree of flexibility, and therefore the time period, will be different in different industries. The market period is so short that elasticity of supply is inelastic; it could be almost perfectly inelastic or vertical. In this situation, it is virtually impossible for producers to adjust their resources and change the quantity supplied. (Think of adjustments on a farm once the crop has been planted once the crop has been planted.) The short-run supply elasticity is more elastic than the market period and will depend on the ability of producers to respond to price change. Industrial producers are able to make some output changes by having workers work overtime or by bringing on an extra shift. The long-run supply elasticity is the most elastic, because more adjustments can be made over time and quantity can be changed more relative to a small change in price. The producer has time to build a new plant. 6[ 01-&.-:*#+(3=(?-.13#.3&3$-.+;@0((AB!B Price Elasticity of Supply C. Applications of the price elasticity of supply. Antiques and other nonreproducible commodities are inelastic in supply, sometimes the supply is perfectly inelastic. This makes their prices highly susceptible to fluctuations in demand. Gold prices are volatile because the supply of gold is highly prices are volatile because the supply of gold is highly inelastic, and unstable demand resulting from speculation causes prices to fluctuate significantly. 6] 01-&.-:*#+(3=(?-.13#.3&3$-.+;@0((AB!B !A Discussion Sellers often charge different prices for goods based on differences in price elasticity of demand. The ability to charge different prices depends on some market power; that is, some ability to control price (unlike the competitive model where all buyers and sellers exchange at exactly the same price). Customers are grouped according to elasticities. Business travelers have more inelastic demand for air travel and thus can be charged have more inelastic demand for air travel, and thus can be charged a higher price than the more price elastic tourist. The low budgets of children make their demand more price elastic, explaining why they receive discounts for movies or sporting events. In a like manner, colleges and universities recognize that income differences cause students to have different elasticities of demand for higher education, and schools attempt to discount prices (through financial aid) based on price sensitivity. 01-&.-:*#+(3=(?-.13#.3&3$-.+;@0((AB!B @3D1.#+ 0%D*(hM(q#%,(%&'(09-*-:(qMJM(J3D&G;(Managerial Economics, U,9()'-,-3&;(01#&,-.#(a%**;(ABBVM( ?%1e(a-1+.9#/;(Managerial Economics;(!B,9()'-,-3&;( @3D,9CX#+,#1&;(ABBRM( ?.43&&#**(%&'(@,%&*#/(<1D#; Microeconomics, !V,9( #'-,-3&;(ABBVM \M(h*#&&(aDII%1'(%&'(O&,93&/(0M(Yr<1-#&;( Microeconomics,!+,(#'-,-3&(ABBVM 6^ 01-&.-:*#+(3=(?-.13#.3&3$-.+;@0((AB!B UB !R ...
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