Download presentation

Presentation is loading. Please wait.

1
**Chapter 7 Elasticity of Demand and Supply**

2
**Demand Elasticity (Price Elasticity of Demand)**

Ed = (%∆Qd)/(%∆P) = {(Qd2 - Qd1)/[(Qd1 + Qd2)/2]}/ {(P2 – P1)/[(P1 + P2)/2]} Ed represented as positive by convention, though actually always negative due to downward-sloping demand curve hence always take absolute value

3
Chapter 20 Figure 20.1(a)

4
Chapter 20 Figure 20.1(b)

5
Chapter 20 Table 20.1

6
Chapter 20 Figure 20.2(a)

7
**Determinants of Price Elasticity of Demand**

Demand tends to be more elastic or less inelastic: if the good is a luxury; the longer the time period; the greater the number of close substitutes; and the more narrowly defined the market. 8

8
**Determinants of Price Elasticity of Demand**

Demand tends to be more inelastic or less elastic: if the good is a necessity; the shorter the adjustment time; if there are few good substitutes; and the more broadly defined the market. 9

9
**Total Revenue and Elasticity**

Chapter 20 Figure 20.2(b) Total Revenue and Elasticity

10
Chapter 20 Table 20.2

11
**Computing Demand Elasticity**

Demand for Ice Cream ED = (8 - 10) / 9 2.20 ($ $2.00) / $2.10 2.00 8 10 11

12
**Computing Demand Elasticity**

Demand for Ice Cream ED = (22%) 2.20 (9.5%) 2.00 8 10 12

13
**Computing Demand Elasticity**

Demand for Ice Cream ED 2.32 = 2.20 2.00 8 10 13

14
**Computing Demand Elasticity**

Demand for Ice Cream Demand is Elastic ED 2.32 = 2.20 2.00 8 10 14

15
Chapter 20 Table 20.3

16
**Supply Elasticity (Price Elasticity of Supply)**

Es = (%∆Qs)/(%∆P) = {(Qs2 - Qs1)/[(Qs1 + Qs2)/2]}/ {(P2 – P1)/[(P1 + P2)/2]} Es always positive due to upward-sloping demand curve hence never take absolute value

17
Chapter 20 Figure 20.3(a)

18
Chapter 20 Figure 20.3(b)

19
Chapter 20 Figure 20.3(c)

20
**Cross Elasticities (Cross-Price Elasticity of Demand)**

Exy = (%∆Qdx)/(%∆Py) = {(Qdx2 - Qdx1)/[(Qdx1 + Qdx2)/2]}/ {(Py2 – Py1)/[(Py1 + Py2)/2]} Exy measures responsiveness of the demand for x to changes in the price of y Positive for substitutes Negative for complements never take absolute value

21
**Income Elasticities (Income Elasticity of Demand)**

Ei = (%∆Qd)/(%∆Y) = {(Qd2 - Qd1)/[(Qd1 + Qd2)/2]}/ {(Y2 – Y1)/[(Y1 + Y2)/2]} Ei measures responsiveness of demand for x to changes in (average) consumer income Positive for normal goods Negative for inferior goods never take absolute value

22
Chapter 20 Table 20.4

Similar presentations

OK

Copyright © 2004 South-Western 5 Elasticity and Its Applications.

Copyright © 2004 South-Western 5 Elasticity and Its Applications.

© 2017 SlidePlayer.com Inc.

All rights reserved.

Ads by Google

Ppt on views in dbms Ppt on articles of association for a church Ppt on brand marketing company Ppt on windows mobile operating system Ppt on magnetic levitation transportation Ppt on isobars and isotopes of helium Ppt on any one mathematician blaise Ppt on network switching table Ppt on credit card processing Ppt on business model of hul