Sess 4-Elasticity-Ch04

Info icon This preview shows pages 1–13. Sign up to view the full content.

Business Microeconomics Instructor: Gulnara Moldasheva 1 Elasticity CHAPTER 4
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

Business Microeconomics Instructor: Gulnara Moldasheva 2 CHAPTER
Image of page 2
Business Microeconomics Instructor: Gulnara Moldasheva 3 What are the effects of a high gas price on buying plans? You can see some of the biggest effects at car dealers’ lots, where SUVs remain unsold while sub-compacts sell in greater quantities. But how big are these effects? When the price of gasoline doubles, by how much does the quantity of SUVs sold decrease, and by how much does the quantity of sub-compacts sold increase? What about gasoline purchases? Do we spend more on gas or do we find substitutes and spend less on gas? Elasticity is a tool that addresses these questions.
Image of page 3

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

Business Microeconomics Instructor: Gulnara Moldasheva 4 ° ° Elasticity has a broad range of Elasticity has a broad range of applications. applications. 1. 1. Price elasticity of demand Price elasticity of demand 2. 2. Price elasticity of supply Price elasticity of supply 3. 3. Cross price elasticity Cross price elasticity 4. 4. Income Elasticity Income Elasticity Computing Elasticity Computing Elasticity Computing Elasticity
Image of page 4
Business Microeconomics Instructor: Gulnara Moldasheva 5 Price Elasticity of Demand In Figure 4.1(a), an increase in supply brings ° A large fall in price ° A small increase in the quantity demanded
Image of page 5

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

Business Microeconomics Instructor: Gulnara Moldasheva 6
Image of page 6
Business Microeconomics Instructor: Gulnara Moldasheva 7 In Figure 4.1(b), an increase in supply brings ° A small fall in price ° A large increase in the quantity demanded Price Elasticity of Demand
Image of page 7

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

Business Microeconomics Instructor: Gulnara Moldasheva 8
Image of page 8
Business Microeconomics Instructor: Gulnara Moldasheva 9 The contrast between the two outcomes in Figure 4.1 highlights the need for ° A measure of the responsiveness of the quantity demanded to a price change. The price elasticity of demand is a units-free measure of the responsiveness of the quantity demanded of a good to a change in its price when all other influences on buyers’ plans remain the same. Price Elasticity of Demand
Image of page 9

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

Business Microeconomics Instructor: Gulnara Moldasheva 10 Calculating Elasticity The price elasticity of demand is calculated by using the formula: Percentage change in quantity demanded Percentage change in price Price Elasticity of Demand
Image of page 10
Business Microeconomics Instructor: Gulnara Moldasheva 11 To calculate the price elasticity of demand: We express the change in price as a percentage of the average price the average of the initial and new price, and we express the change in the quantity demanded as a percentage of the average quantity demanded the average of the initial and new quantity. Price Elasticity of Demand
Image of page 11

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

Business Microeconomics Instructor: Gulnara Moldasheva 12 Figure 4.2 calculates the price elasticity of demand for pizza.
Image of page 12
Image of page 13
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern