微观经济学英文课件：05elasticity

1、5Elasticity and Its ApplicationsElasticity . . . allows us to analyze supply and demand with greater precision. is a measure of how much buyers and sellers respond to changes in market conditions THE ELASTICITY OF DEMAND Price elasticity of demand is a measure of how much the quantity demanded of a

2、good responds to a change in the price of that good. Price elasticity of demand is the percentage change in quantity demanded given a percent change in the price. The Price Elasticity of Demand and Its Determinants Availability of Close Substitutes Necessities versus Luxuries Definition of the Marke

3、t Time HorizonThe Price Elasticity of Demand and Its Determinants Demand tends to be more elastic :lthe larger the number of close substitutes.lif the good is a luxury.lthe more narrowly defined the market (why?).lthe longer the time period.Computing the Price Elasticity of Demand The price elastici

4、ty of demand is computed as the percentage change in the quantity demanded divided by the percentage change in price.Price elasticity of demand =Percentage change in quantity demandedPercentage change in price Example: If the price of an ice cream cone increases from $2.00 to $2.20 and the amount yo

5、u buy falls from 10 to 8 cones, then your elasticity of demand would be calculated as:Computing the Price Elasticity of DemandPrice elasticity of demand =Percentage change in quantity demandedPercentage change in price2%10%20%10000. 2)00. 220. 2(%10010)108( If changes from opposite direction: if the

6、 price of an ice cream cone decreases from $2.20 to $2.00 and the amount you buy increases from 8 to 10 cones, then your elasticity of demand would be calculated as:Computing the Price Elasticity of Demand75. 2%100)11/1 (%25%10020. 2)20. 200. 2(%1008)810(The Midpoint Method: A Better Way to Calculat

7、e Percentage Changes and Elasticities The midpoint formula is preferable when calculating the price elasticity of demand because it gives the same answer regardless of the direction of the change.Price elasticity of demand =() /() / () /() / QQQQPPPP2121212122The Midpoint Method: A Better Way to Cal

8、culate Percentage Changes and Elasticities Example: If the price of an ice cream cone increases from $2.00 to $2.20 and the amount you buy falls from 10 to 8 cones, then your elasticity of demand, using the midpoint formula, would be calculated as:32. 2%5 . 9%22%1002/ )00. 220. 2()00. 220. 2(%1002/

9、)810()108(A Shortcut for Calculating Elasticities The elasticity of a straight line at a point is given by the ratio of the length of the line segment below the point to the length of the line segment above the point. Homework for this chapter: Prove the above Proposition with mathematical method.Th

10、e Variety of Demand Curves Inelastic DemandlQuantity demanded does not respond strongly to price changes.lPrice elasticity of demand is less than one. Elastic DemandlQuantity demanded responds strongly to changes in price.lPrice elasticity of demand is greater than one.Computing the Price Elasticity

11、 of Demand54DemandQuantity100050-3percent 22-percent 675.00)/2(4.005.00)-(4.0050)/2(10050)-(100E -0.6667percent 300percent 22.22-5.00)/2(7.005.00)-(7.0050)/2(4050)-(40EBCABPrice$740ABCThe Variety of Demand Curves Perfectly InelasticlQuantity demanded does not respond to price changes.lPrice elastici

12、ty of demand is equal to zero. Perfectly ElasticlQuantity demanded changes infinitely with any change in price.lPrice elasticity of demand is infinity. Unit ElasticlQuantity demanded changes by the same percentage as the price.lPrice elasticity of demand is equal to one.The Variety of Demand Curves

13、Because the price elasticity of demand measures how much quantity demanded responds to the price, it is closely related to the slope of the demand curve, but not the same as the slope.Figure 1 The Price Elasticity of Demand(a) Perfectly Inelastic Demand: Elasticity Equals 0$54QuantityDemand10001. An

14、increasein price . . .2. . . . leaves the quantity demanded unchanged.PriceFigure 1 The Price Elasticity of Demand(b) Inelastic Demand: Elasticity Is Less Than 1Quantity0$590Demand1. A 22%increasein price . . .Price2. . . . leads to an 11% decrease in quantity demanded.4100Figure 1 The Price Elastic

15、ity of Demand2. . . . leads to a 22% decrease in quantity demanded.(c) Unit Elastic Demand: Elasticity Equals 1Quantity41000Price$5801. A 22%increasein price . . .DemandFigure 1 The Price Elasticity of Demand(d) Elastic Demand: Elasticity Is Greater Than 1DemandQuantity41000Price$5501. A 22%increase

16、in price . . .2. . . . leads to a 67% decrease in quantity demanded.Figure 1 The Price Elasticity of Demand(e) Perfectly Elastic Demand: Elasticity Equals InfinityQuantity0Price$4Demand2. At exactly $4,consumers willbuy any quantity.1. At any priceabove $4, quantitydemanded is zero.3. At a price bel

17、ow $4,quantity demanded is infinite.Total Revenue and the Price Elasticity of Demand Total revenue is the amount paid by buyers and received by sellers of a good. Computed as the price of the good times the quantity sold.TR = P QFigure 2 Total RevenueDemandQuantityQP0Price P Q = $400(revenue)$4100El

18、asticity and Total Revenue along a Linear Demand Curve With an inelastic demand curve, an increase in price leads to a decrease in quantity that is proportionately smaller. Thus, total revenue increases. Figure 3 How Total Revenue Changes When Price Changes: Inelastic DemandDemandQuantity0PriceReven

19、ue = $100 Quantity0PriceRevenue = $240 Demand$1100$380An Increase in price from $1 to $3 leads to an Increase in total revenue from $100 to $240Elasticity and Total Revenue along a Linear Demand Curve With an elastic demand curve, an increase in the price leads to a decrease in quantity demanded tha

20、t is proportionately larger. Thus, total revenue decreases. Question: With an elastic demand curve, what should be done in order to increase total revenue?Figure 4 How Total Revenue Changes When Price Changes: Elastic DemandDemandQuantity0PriceRevenue = $200 $450DemandQuantity0PriceRevenue = $100 $5

21、20An Increase in price from $4 to $5 leads to an decrease in total revenue from $200 to $100Elasticity of a Linear Demand CurveIncome Elasticity of Demand Income elasticity of demand measures how much the quantity demanded of a good responds to a change in consumers income. It is computed as the per

22、centage change in the quantity demanded divided by the percentage change in income. Computing Income ElasticityIncome elasticity of demand =Percentage change in quantity demandedPercentage change in incomeIncome Elasticity Types of GoodslNormal GoodslInferior Goods Higher income raises the quantity

23、demanded for normal goods but lowers the quantity demanded for inferior goods. Income Elasticity Goods consumers regard as necessities tend to be income inelasticlExamples include food, fuel, clothing, utilities, and medical services. Goods consumers regard as luxuries tend to be income elastic.lExa

24、mples include sports cars, furs, and expensive foods.THE ELASTICITY OF SUPPLY Price elasticity of supply is a measure of how much the quantity supplied of a good responds to a change in the price of that good. Price elasticity of supply is the percentage change in quantity supplied resulting from a

25、percent change in price.Figure 6 The Price Elasticity of Supply(a) Perfectly Inelastic Supply: Elasticity Equals 0$54SupplyQuantity10001. Anincreasein price . . .2. . . . leaves the quantity supplied unchanged.PriceFigure 6 The Price Elasticity of Supply(b) Inelastic Supply: Elasticity Is Less Than

26、1110$51004Quantity01. A 22%increasein price . . .Price2. . . . leads to a 10% increase in quantity supplied.SupplyFigure 6 The Price Elasticity of Supply(c) Unit Elastic Supply: Elasticity Equals 1125$51004Quantity0Price2. . . . leads to a 22% increase in quantity supplied.1. A 22%increasein price .

27、 . .SupplyFigure 6 The Price Elasticity of Supply(d) Elastic Supply: Elasticity Is Greater Than 1Quantity0Price1. A 22%increasein price . . .2. . . . leads to a 67% increase in quantity supplied.4100$5200SupplyFigure 6 The Price Elasticity of Supply(e) Perfectly Elastic Supply: Elasticity Equals Inf

28、inityQuantity0Price$4Supply3. At a price below $4,quantity supplied is zero.2. At exactly $4,producers willsupply any quantity.1. At any priceabove $4, quantitysupplied is infinite.Determinants of Elasticity of Supply Ability of sellers to change the amount of the good they produce.lBeach-front land

29、 is inelastic.lBooks, cars, or manufactured goods are elastic. Time period. lSupply is more elastic in the long run.Computing the Price Elasticity of Supply The price elasticity of supply is computed as the percentage change in the quantity supplied divided by the percentage change in price.Price el

30、asticity of supply=Percentage change in quantity suppliedPercentage change in priceCompute the Price Elasticity of SupplySupply is inelastic24. 04 . 0095. 02/ )00. 200. 3(00. 200. 32/ )100110(100110EDTHREE APPLICATIONS OF SUPPLY, DEMAND, AND ELASTICITY Can good news for farming be bad news for farme

31、rs? What happens to wheat farmers and the market for wheat when university agronomists discover a new wheat hybrid that is more productive than existing varieties?THREE APPLICATIONS OF SUPPLY, DEMAND, AND ELASTICITY Examine whether the supply or demand curve shifts. Determine the direction of the sh

32、ift of the curve. Use the supply-and-demand diagram to see how the market equilibrium changes.Figure 8 An Increase in Supply in the Market for WheatQuantity ofWheat0Price ofWheat3. . . . and a proportionately smallerincrease in quantity sold. As a result,revenue falls from $300 to $220. DemandS1S22.

33、 . . . leadsto a large fallin price . . . 1. When demand is inelastic,an increase in supply . . .2110$3100 Why did OPEC fail to keep the price of oil high? In the short run: Left-hand side of figure9 ,P107 In the long run: Right-hand side of figure9 ,P107THREE APPLICATIONS OF SUPPLY, DEMAND, AND ELASTICITYTHREE APPLICATIONS OF SUPPLY, DEMAND, AND ELASTICITY Does drug interdiction increase or decrease drug-related crime? To compare the two policies: Policy of trying to move the supply curve v.s. that of demand curve. When analyzing the effects of economic policy, it is important to ke