1 Elasticities. 2 In economics we use the concept of elasticity to compare percentage changes in pieces and quantities. The price elasticity of demand.

Slides:

Advertisements

Similar presentations

The Price System The market system, also called the price system, performs two important and closely related functions: Price Rationing Resource Allocation.

Advertisements

Labor Demand in the market in the short run.

Isoquants An isoquant is a curve or line that has various combinations of inputs that yield the same amount of output.

Supply & Demand: Elasticity & Applications

Long Run Demand for Labor

Economics 202: Intermediate Microeconomic Theory 1.Should be through Chapter 12 (Chapter 14, Monopoly is next) 2.HW on website, due Tue in class.

The Demand for Labor The Demand for Labor The demand for labor is a derived demand. Employer’s demand for labor is a function of the characteristics of.

1 A Closer Look at Production and Costs CHAPTER 7 Appendix © 2003 South-Western/Thomson Learning.

Costs, Isocost and Isoquant

Labor Supply and Elasticity

1 Production and Costs in the Long Run. 2 The long run u The long run is the time frame longer or just as long as it takes to alter the plant. u Thus.

Chapter 4: Labor Demand Elasticities

Chapter 6 Inputs and Production Functions.

1 Other demand elasticities There are other elasticities besides the own price elasticity of demand. Let’s see a few here.

Chapter 8 Costs © 2006 Thomson Learning/South-Western.

The Organization of Production

1 Production and Costs in the Long Run. 2 The long run u The long run is the time frame longer or just as long as it takes to alter the plant. u Thus.

Production ECO61 Microeconomic Analysis Udayan Roy Fall 2008.

Long Run Demand for Labor

Lecture 4: The Demand for Labor

Labor Demand Elasticities. Own-Wage Elasticity Review of the concept of elasticity in product markets Own-wage Elasticity = percentage change in labor.

Part 4 © 2006 Thomson Learning/South-Western Production, Costs, and Supply.

Supply CHAPTER The Supply Curve 5.2 Shifts of the Supply Curve

Chapter 5-1 Chapter Five Demand for Labour in Competitive Labour Markets.

Chapter 6 Production. The Production Function A production function tells us the maximum output a firm can produce (in a given period) given available.

Chapter 3 Labor Demand McGraw-Hill/Irwin

Chapter 3 Labor Demand.

The Price System The market system, also called the price system, performs two important and closely related functions: Price Rationing Resource Allocation.

Elasticity Topic 4. Elasticity of Demand and Supply In order to turn supply and demand into a truly useful tool, we need to know how much supply and demand.

1 Price Elasticity of Demand  In order to predict what will happen to total expenditures,  We must know how much quantity will change when the price.

1 Chapter 4 Application on Demand and Supply. 2 Elasticity Elasticity is a general concept that can be used to quantify the response in one variable when.

Supply Review Economics Mr. Bordelon.

Chapter 4 Labor Demand Elasticities. Own Wage Elasticity  ii = (%  L i ) / (%  w i ) If:Then:   ii | > 1 labor demand is elastic   ii | < 1 labor.

Chapter 8 © 2006 Thomson Learning/South-Western Costs.

Practice Questions Two goods are ________. A(n) _________ in the price of one good will _________ the demand for the other good: (A) substitutes; increase;

Short-run Production Function

Chapter 7 Production Theory

5.3 Consumer Surplus Difference between maximum amount a consumer is willing to pay for a good (reservation price) and the amount he must actually pay.

PRODUCTION AND ESTIMATION CHAPTER # 4. Introduction  Production is the name given to that transformation of factors into goods.  Production refers to.

1 SM1.21 Managerial Economics Welcome to session 5 Production and Cost Analysis.

Costs of Production How much to produce?. Labor and Output How the number of workers affects total production?

Chapter 7: Resource Markets. Chapter Focus: How businesses maximize profits by choosing how much of each economic resource to use The demand for resources.

PPA 723: Managerial Economics Study Guide: Production, Cost, and Supply.

Next page Chapter 5: The Demand for Labor. Jump to first page 1. Derived Demand for Labor.

Theory of Production & Cost BEC Managerial Economics.

Lecture 2 Elasticity Costs Perfect Competition. Elasticity Elasticity is a measure of how responsive the quantity demanded is to changes in environmental.

Production Theory and Estimation

Elasticity. Elasticity measures how sensitive one variable is to a change in another variable. –Measured in terms of percentage changes, elasticity tells.

Isocosts Summarize Prices of Inputs

PowerPoint Slides by Robert F. BrookerCopyright (c) 2001 by Harcourt, Inc. All rights reserved. The Organization of Production Inputs –Labor, Capital,

AAEC 2305 Fundamentals of Ag Economics Chapter 6 Multiple Inputs & Outputs.

Part 4 © 2006 Thomson Learning/South-Western Production, Costs, and Supply.

Various capital and labor combinations to produce 5000 units of output abcde Units of capital (K) Units of labor (L)

Total Product Marginal Product Average Product Production or Output Elasticity TP = Q = f(L) MP L =  TP  L AP L = TP L E L = MP L AP L.

Activity 45 & 46 derived demand for a resource The demand for a resource is called Derived Demand because it is derived from the demand for the goods and.

Addison Wesley Longman, Inc. © 2000 Chapter 4 Labor Demand Elasticities.

Next page Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Chapter 5 The Demand for Labor.

LIR 809 DEMAND FOR LABOR  Overview  Short-run Demand for Labor  Long-run Demand for Labor.

1 Chapter 1 Appendix. 2 Indifference Curve Analysis Market Baskets are combinations of various goods. Indifference Curves are curves connecting various.

Supply Mr. Southward. What is Supply?  The amount of a product that would be offered for sale at all possible prices that could prevail in the market;

Supply.  Supply is based on decisions made by producers in various types of businesses.  Supply is the amount of a product that would be offered at.

1 Optimal Combination of Inputs Now we are ready to answer the question stated earlier, namely, how to determine the optimal combination of inputs As was.

VOCABULARY REVIEW CHAPTERS 4-6. Vocabulary Chapter 4 ____________ is the amount of money a firm receives by selling its goods. Total revenue When the.

Chapter 6 Production.

Chapter 5 The Demand for Labor McGraw-Hill/Irwin

Short-run Production Function

Chapter 17 Appendix DERIVED DEMAND.

ECN 201: Principles of Microeconomics

Elasticity A measure of the responsiveness of one variable (usually quantity demanded or supplied) to a change in another variable Most commonly used elasticity:

Application on Demand and Supply

Presentation transcript:

1 Elasticities

2 In economics we use the concept of elasticity to compare percentage changes in pieces and quantities. The price elasticity of demand is the ratio of the percentage change in quantity demanded to the percentage change in the price of the output. If greater than 1 in absolute value we say demand is elastic. It less than 1 in absolute value the demand is inelastic. There is an elasticity of product supply, labor supply and labor demand. It is thought that the longer the time frame under consideration the more elastic a measure will be because we have more options in the longer term.

3 The Cross-Elasticity of Labor Demand Often you hear the phrases skilled labor and unskilled labor. The phrases are just an indication of the type of labor involved. We have also said that maybe capital can be substituted for labor. When we focus on a certain type of labor (say skilled), the cross- elasticity of demand is the ratio of The % change in the quantity of the labor demanded divided by the percentage change in the price of another input, where the price is a wage or cost of capital. Now, depending on the production process, some inputs are called gross substitutes and some inputs are called gross complements. If the cross elasticity is a positive number, then the inputs or factors of production are gross substitutes. An increase (decrease) in the price of one would make you use more (less) of the other. Both percentage changes are positive (negative).

4 If the cross elasticity is a negative number, then the inputs or factors of production are gross complements. An increase (decrease) in the price of one would make you use less (more) of the other. One percentage change is positive and one is negative. When you are moving soil shovels and unskilled workers are gross complements, right? But big earth mover machines and skilled operators are gross complements, right? Are unskilled workers and big earth mover machines gross complements? I think not. Let’s returns to our isoquant idea. There we had a situation where along an isoquant we had various combinations of labor and capital that lead to the same amount of output. We also talked about changes in the wage leading to substitution effects and scale effects. Let’s return to the substitution effect.

5 The Elasticity of Substitution Yet another elasticity concept is the elasticity of substitution. It is also a measure along a given isoquant when the level of output is fixed. It is defined as the percentage change in the capital labor ratio divided by the percentage change in wage to cost of capital ratio. The capital labor ratio is K/E and the wage to cost of capital ratio is w/r. You may recall we said to have a firm produce an output level at minimum cost if had to have the ratio of marginal products equal to w/r. The elasticity of substitution is related in that it looks at the K/E ratio at this point.