Micro economic ELASTICITY参考.ppt

* * * * * * The unit elastic demand curve is a good one to use to emphasize that elasticity and slope are not equal. Have the students calculate the elasticity of supply on two linear demand curves that passes through the origin, one with a slope of 0.5 and the other with a slope of 2. They’ll get the message. * * * * * * * * * Elasticity and slope along a linear demand curve. You can provide solid intuition on why the elasticity of demand falls as we move down a linear demand curve. Point out first that as the quantity increases, the percentage change in quantity decreases for equal changes in quantity. Do two calculations, one at a small quantity and one at a large quantity. Then point out that this same reasoning applies to the price. As the price falls, the percentage change in price increases for equal changes in price. Again, do two calculations, one at a high price and one at a low price. Now put the two together. As we move downward along the demand curve, the percentage change in quantity is getting smaller and the percentage change in price is getting larger, so the elasticity—the ratio of the percentage change in quantity to the percentage change in price—is getting smaller. * * * * * * * * * * * * * * * * * Encourage your students to use the total revenue test (total expenditure) to check whether their demand for some item the price of which has changed, is elastic or inelastic. * Fuel for thought: Getting some intuition on what determines whether demand is inelastic or elastic The demand for gasoline and junk food in general. Students love their cars and junk food, and they know that the demand for both in general is inelastic because there are no good substitutes for personal transportation and a quick snack. The demand for Joe’s quick-mart gasoline. Ask your students if Joe’s quick-mart (substitute your actual local one) convenience store would lose much business and total revenues if he raised the price of gasoline more than a penny or two compared