Chapter 6 gives sufficient coverage of the basic cost curves to present the

Chapter 6 gives sufficient coverage of the basic cost

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Chapter 4ElasticityOverviewThis chapter introduces the concept of elasticity (including price elasticity of demand, income elasticity, cross-price elasticity, and price elasticity of supply). It presents elasticity as an extension of the supply and demand model presented in Chapter 3. The effects of price elasticity of demand on total revenue and total expenditures is discussed and explored graphically. The chapter discusses the interpretation of cross-price elasticity and income elasticity in terms of what they tell us about people’s preferences for various goods. Finally, the chapter investigates price elasticity of supply and how it can be used to investigate firms’ production processes.Core PrinciplesCost-Benefit Principle- The chapter uses the MC = MB principle to discuss individual consumption choices and market demand.Important Concepts CoveredPrice Elasticity of DemandIncome ElasticityCross-price Elasticity)Price elasticity of supplyElastic/inelastic/unit elasticPerfectly elastic/perfectly inelasticTotal expendituresTotal RevenueTeaching ObjectivesAfter completing this chapter, you want your students to be able to:Understand the concept of price elasticity of demand Discuss the factors affecting price elasticity of demandCompute price elasticity of demand Interpret and evaluate price elasticity of demand using a graphInterpret the value of price elasticity of demand Explain inelastic (perfectly), elastic (perfectly), and unit elasticityDefine total expenditures and total revenueDetermine the effect of price changes on a firm's total revenue81
Understand and calculate cross-price elasticityExplain how changes in substitute prices affect demandUnderstand and calculate income elasticityExplain how changes in income affect demandUnderstand and calculate price elasticity of supplyInterpret price elasticity of supply on a graphUnderstand the factors that affect elasticity of supplyIn-Class ActivitiesExpernomics, Vol. 6, #1 (Spring 1997) classroom experiment dealing with demand curves."Perfect Competition and Inelastic Demand" video #17 from the "Economics U$A" series."Demand Theory: Household Behavior" video from the "Introductory Economics" series.Chapter OutlineI.Price Elasticity of DemandA. DefinitionB.Determinants of Price Elasticity of Demand1.substitution possibilities2.budget share3.time4.Economic Naturalist 4.1: "Will a Higher Tax on Cigarettes Curb Teenage Smoking?"5.Economic Naturalist 4.2: “Why did the luxury tax on yachts backfire?”C.Graphical interpretation of price elasticity1.Calculating price elasticity of demand

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