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8/14/2019 40708885 Microeconomics Hubbard O Brien Ch06
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2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patric !"Brien, 2e.
Fernando & Yvonn
Quijano
Prepared by:
Chapter
#
Elasticity: The
Responsiveness ofDemand and Supply
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2 o$ 2% 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patric !"Brien, 2e.
Do People Care about the
Prices of Books?
6.1 Define the price elasticityof demandand understand how to measure it.
6.2 Understand the determinantsof theprice elasticityof demand.
6. Understand the relationship !etween
the price elasticityof demandandtotal revenue.
6.." Define the cross#price elasticityofdemand and the income elasticityofdemand$ and understand theirdeterminants and how they aremeasured.
6.% Use price elasticityand incomeelasticityto analy&e economicissues.
6.6 Define the price elasticityof supplyand understand its maindeterminants and how it ismeasured.
'earnin( )!*ectives
&n 200#, '.(. consumerss)ent almost *+ billion tobuy -.2 billion co)ies o$ne )rinted boos.
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hapte - o$ 0 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patric !"Brien, 2e.
Elasticity: The Responsiveness of
Demand and upply
Elasticity A measure o$ homuch one economic /ariable
res)onds to changes inanother economic /ariable.
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hapte o$ 0 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patric !"Brien, 2e.
+rice elasticity of demand heres)onsi/eness o$ the 1uantity demanded to achange in )rice, measured by di/iding the)ercentage change in the 1uantity demanded
o$ a )roduct by the )ercentage change in the)roduct"s )rice.
The Price Elasticity of Demand and !ts "easurement
'earnin(!becti/e 6.1
Measuring the Price Elasticity of Demand
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hapte + o$ 0 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patric !"Brien, 2e.
Elastic demand 3emand is elastic hen the )ercentagechange in 1uantity demanded is greater than the)ercentage change in )rice, so the )rice elasticity isgreater than 4 in absolute /alue.
The Price Elasticity of Demand and !ts "easurement
'earnin(!becti/e 6.1
,nelastic demand 3emand is inelastic hen the)ercentage change in 1uantity demanded is lessthan the )ercentage change in )rice, so the )riceelasticity is less than 4 in absolute /alue.
Elastic Demand and Inelastic Demand
Unit#elastic demand 3emand is unit5elastic henthe )ercentage change in 1uantity demanded is e1ualto the )ercentage change in )rice, so the )riceelasticity is e1ual to 4 in absolute /alue.
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hapte # o$ 0 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patric !"Brien, 2e.
The Price Elasticity of Demand and !ts "easurement
'earnin(!becti/e 6.1
An Example of Computing Price Elasticities
-,URE 6#1
Elastic and ,nelastic
Demand /urves
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hapte 6 o$ 0 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patric !"Brien, 2e.
The Price Elasticity of Demand and !ts "easurement
'earnin(!becti/e 6.1
The Midpoint Formula
Price elasticity of demand =
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hapte 8 o$ 0 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patric !"Brien, 2e.
SolvedProblem 6#1/alculatin( the +rice
Elasticity of Demand
'earnin(!becti/e 6.1
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hapte % o$ 0 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patric !"Brien, 2e.
The Price Elasticity of Demand and !ts "easurement
'earnin(!becti/e 6.1
When Demand Curves Intersect the FlatterCurve Is More Elastic
Polar 7ases o$ Per$ectly Elastic and Per$ectly &nelastic 3emand
+erfectly inelastic demand he casehere the 1uantity demanded is com)letelyunres)onsi/e to )rice, and the )riceelasticity o$ demand e1uals ero.
+erfectly elastic demand he casehere the 1uantity demanded is in$initelyres)onsi/e to )rice, and the )rice elasticityo$ demand e1uals in$inity.
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hapte 40 o$ 0 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patric !"Brien, 2e.
The Price Elasticity of Demand and !ts "easurement
'earnin(!becti/e 6.1
Polar Cases of Perfectly Elastic and Perfectly Inelastic DemandTa!le 6#1
Summary of the +rice
Elasticities of Demand
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hapte 44 o$ 0 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patric !"Brien, 2e.
The Price Elasticity of Demand and !ts "easurement
'earnin(!becti/e 6.1
Ta!le 6#1
Summary of the +rice
Elasticities of Demand 0continued
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hapte 42 o$ 0 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patric !"Brien, 2e.
The Price Elasticity of Demand and !ts "easurement
'earnin(!becti/e 6.1
3on"t 9et his Ha))en to)U33on"t 7on$use &nelastic ith Per$ectly &nelastic
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hapte 4- o$ 0 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patric !"Brien, 2e.
The Determinants of the Price Elasticity of Demand
'earnin(!becti/e 6.2
4 5vaila!ility of /lose Su!stitutes
4 +assa(e of Time
4 'uuries versus 7ecessities
4 Definition of the 8ar9et
4 Share of a ood in a /onsumers ;ud(et
he ey determinants o$ the )rice elasticity o$ demandare as $ollos:
,s the Demand for ;oo9s +erfectly ,nelasticS +R,/E
Rugrats in Paris *22.# *22.%%
he ?ummy Returns 2#.%8 22.%8
?iss 7ongeniality 4#.#% 22.%8
he Per$ect (torm 2.%8 22.%%
When D&Ds !ere first introduced themovie studios !ere uncertain a"out
their price elasticity of demand'
'earnin( !becti/e 6 "
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Chapte 22 o$ 0 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patric !"Brien, 2e.
/ross#price elasticity of demand he)ercentage change in 1uantity demanded o$ onegood di/ided by the )ercentage change in the
)rice o$ another good.
'ther Demand Elasticities
'earnin(!becti/e 6."
Cross(Price Elasticity of Demand
'earnin( !becti/e 6 "
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Chapte 2- o$ 0 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patric !"Brien, 2e.
'ther Demand Elasticities
Cross(Price Elasticity of Demand
'earnin(!becti/e 6."
,- T>E+R)DU/TS 5RE . . .
T>E7 T>E /R)SS#+R,/EE'5ST,/,T )- DE857D
?,'' ;E. @ EA58+'E
substitutes )ositi/eo brands o$ digital music)layers
com)lements negati/e 3igital music )layers and
song donloads $rom onlinemusic stores
unrelated ero3igital music )layers and)eanut butter
Ta!le 6#
Summary of /ross#+rice Elasticity of Demand
'earnin( !becti/e 6 "
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Chapte 2 o$ 0 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patric !"Brien, 2e.
'ther Demand Elasticities
Income Elasticity of Demand
'earnin(!becti/e 6."
,ncome elasticity of demand
A measure o$ the res)onsi/eness o$1uantity demanded to changes in
income, measured by the )ercentagechange in 1uantity demanded di/idedby the )ercentage change in income.
'earnin( !becti/e 6 "
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Chapte 2+ o$ 0 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patric !"Brien, 2e.
'ther Demand Elasticities
Income Elasticity of Demand
'earnin(!becti/e 6."
,- T>E ,7/)8E E'5ST,/,T
)- DE857D ,S . . .
T>E7 T>E ))D ,S . . .
EA58+'E
)ositi/e, but less than 4 normal and a necessity?il
)ositi/e and greater than 4 normal and a lu;ury 7a/iar
negati/e in$erior High5$at ?eat
Ta!le 6#"
Summary of ,ncome
Elasticity of
Demand
'earnin( !becti/e 6 "
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Chapte 2# o$ 0 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patric !"Brien, 2e.
'earnin(!becti/e 6."
Price Elasticity( Cross)Price Elasticity( and !ncome Elasticityin the "arket for *lcoholic Bevera$es
8a9in(the
/onnection
Price elasticity o$ demand $or beer 50.2-
7ross5)rice elasticity o$ demand beteen
beer and ine 0.-47ross5)rice elasticity o$ demand beteenbeer and s)irits 0.4+
&ncome elasticity o$ demand $or beer 50.0%
&ncome elasticity o$ demand $or ine +.0-
&ncome elasticity o$ demand $or s)irits 4.24
'earnin( !becti/e 6 %
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Chapte 26 o$ 0 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patric !"Brien, 2e.
+sin$ Elasticity to *naly,e the Disappearin$
-amily -arm
'earnin(!becti/e 6.%
-i(ure 6#"
Elasticity and the
Disappearin( -arm
'earnin( !becti/e 6 %
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Chapte 28 o$ 0 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patric !"Brien, 2e.
SolvedProblem 6#%Usin( +rice Elasticity to 5naly&e
+olicy toward ,lle(al Dru(s
'earnin(!becti/e 6.%
@eri$y that the )ercentage change in 1uantity demanded is 4.%.
'earnin( !becti/e 6 6
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Chapte 2% o$ 0 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patric !"Brien, 2e.
The Price Elasticity of upply and !ts "easurement
Measuring the Price Elasticity of )upply
'earnin(!becti/e 6.6
+rice elasticity of supply he res)onsi/enesso$ the 1uantity su))lied to a change in )rice,measured by di/iding the )ercentage change in
the 1uantity su))lied o$ a )roduct by the)ercentage change in the )roduct"s )rice.
'earnin( !becti/e 6 6
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Chapte -0 o$ 0 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patric !"Brien, 2e.
The Price Elasticity of upply and !ts "easurement
Determinants of the Price Elasticity of )upply
'earnin(!becti/e 6.6
>hether su))ly is elastic or inelastic de)ends onthe ability and illingness o$ $irms to alter the1uantity they )roduce as )rice increases.
!$ten, $irms ha/e di$$iculty increasing the 1uantityo$ the )roduct they su))ly during any short )eriodo$ time.
'earnin( !becti/e 6.6
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Chapte -4 o$ 0 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patric !"Brien, 2e.
'earnin(!becti/e 6.6
.hy *re 'il Prices o +nstable?8a9in(
the
/onnection
'earnin( !becti/e 6.6
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Chapte -2 o$ 0 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patric !"Brien, 2e.
The Price Elasticity of upply and !ts "easurement
Polar Cases of Perfectly Elastic and Perfectly Inelastic )upply
'earnin(!becti/e 6.6
Ta!le 6#%
Summary of the +rice
Elasticities of Supply
'earnin( !becti/e 6.6
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Chapte -- o$ 0 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patric !"Brien, 2e.
The Price Elasticity of upply and !ts "easurement
Polar Cases of Perfectly Elastic and Perfectly Inelastic )upply
'earnin(!becti/e 6.6
Ta!le 6#%
Summary of the +rice
Elasticities of Supply 0continued
'earnin( !becti/e 6.6
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Chapte - o$ 0 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patric !"Brien, 2e.
The Price Elasticity of upply and !ts "easurement
*sing Price Elasticity of )upply to Predict Changes in Price
'earnin(!becti/e 6.6
-i(ure 6#%
/han(es in +rice Depend on the +rice Elasticity of Supply
'earnin(!becti/e 6.6
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Chapte -+ o$ 0 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patric !"Brien, 2e.
The Price Elasticity of upply and !ts "easurement
*sing Price Elasticity of )upply to Predict Changes in Price
(
Ta!le 6#6
Summary of Elasticities
'earnin(!becti/e 6.6
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Chapte -# o$ 0 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patric !"Brien, 2e.
The Price Elasticity of upply and !ts "easurement
*sing Price Elasticity of )upply to Predict Changes in Price
(
Ta!le 6#6
Summary of Elasticities
0continued
'earnin(!becti/e 6.6
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Chapte -6 o$ 0 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patric !"Brien, 2e.
The Price Elasticity of upply and !ts "easurement
*sing Price Elasticity of )upply to Predict Changes in Price
(
Ta!le 6#6
Summary of Elasticities
0continued
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Chapte -% o$ 0 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patric !"Brien, 2e.
5n ,nside '))B Borders 7hanges &ts Reards Program
Borders (lashes Buyer Reards, 7uts 3iscounts
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Ch
7ross5)rice elasticity o$ demand
Elastic demand
Elasticity
&ncome elasticity o$ demand&nelastic demand
Per$ectly elastic demand
Per$ectly inelastic demand
Price elasticity o$ demand
Price elasticity o$ su))ly
otal re/enue
'nit5elastic demand
B e y T e r m s