ECO1010F Week 4 2018.pdf

# P 1 relatively elastic relatively inelastic unitary

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P 1 relatively elastic relatively inelastic unitary elastic Quantity
Elasticity Along a Straight-Line Demand Curve Figure 4.4 shows how demand becomes less elastic as the price falls along a linear demand curve. Price Elasticity of Demand
Price Elasticity of Demand
Elasticity along a demand curve
PED & THE SLOPE: Consider the point elasticity of demand formula: D 2 D 1 Q 1 Q 1 Q 2 HOW DO THE POINT ELASTICITIES ON EACH OF THESE CURVES DIFFER? Price (rands) P 1 Price (rands) D 1 D 2 P 1
en . Estimated Price Elasticities of Demand for Various Goods and Services Goods Estimated Elasticity of Demand Inelastic Salt 0.1 Matches 0.1 Toothpicks 0.1 Note the differences betwe Airline travel, short-run 0.1 Gasoline, short-run 0.2 short run and long run PED Gasoline, long-run 0.7 Residential natural gas, short-run 0.1 Residential natural gas, long-run 0.5 Coffee 0.25 Fish (cod) consumed at home 0.5 Tobacco products, short-run 0.45 Legal services, short-run 0.4 Physician services 0.6 Taxi, short-run 0.6 Automobiles, long-run 0.2 Approximately Unitary Elasticity Movies 0.9 Housing, owner occupied, long-run 1.2 Shellfish, consumed at home 0.9 Oysters, consumed at home 1.1 Private education 1.1 Tires, short-run 0.9 Tires, long-run 1.2 Radio and television receivers 1.2 Elastic Restaurant meals 2.3 Foreign travel, long-run 4.0 Airline travel, long-run 2.4 Fresh green peas 2.8 Automobiles, short-run 1.2 - 1.5 Chevrolet automobiles 4.0 Fresh tomatoes 4.6
1) Number of substitutes The larger the number of substitutes and closer the substitutes, the greater the PED. For example, one might expect the PED to be greater for a rice than petrol. Rice has many substitutes, from pasta, maize meal, potatoes, couscous etc., while petrol has none. 2) Degree of complementarity If the good is used together with other goods it will tend to be more inelastic. For example, printer cartridges (printer) and petrol (motor vehicle). Determinants of the PED:
3)The type of want satisfied by the product Is the good a necessity or luxury? Necessities (e.g. bread, salt, sugar) tend to be price inelastic, while luxuries (eating-out, holidays) tend to be more elastic. 4) The time period The PED may different depending on whether you measure short term or long term changes in Qd. One would expect long term PED to be more elastic, because the consumer has more time to adapt. 5) The share of total income/budget A good that takes up a small share of one s income/budget (e.g. salt) should be more inelastic. Determinants of the PED:
The definition of the product/market i.e. Steak will be more elastic than meat in general. Branding A brand of a product will be more elastic than the product in general. i.e. Sunlight vs Dish Wash liquid. This is because of substitutability. Durability Durable goods (clothing, vehicles, furniture) tend to be more elastic.

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