Microeconomics 2011 Chapter 4 微观经济 教材课程.ppt

What are the effects of a high gas price on buying plans? You could expect to see some of the biggest effects at car dealers’ lots, where SUVs would remain unsold while sub-compacts would sell in greater quantities. But how big are these effects? When the price of gasoline doubles, by how much does the quantity of SUVs sold decrease, and by how much does the quantity of sub-compacts sold increase? What about gasoline purchases? Do we spend more on gas or do we find substitutes and spend less on gas? Elasticity is a tool that addresses these questions. ;Price Elasticity of Demand;The contrast between the two outcomes in Figure 4.1 highlights the need for A measure of the responsiveness of the quantity demanded to a price change. The price elasticity of demand is a units-free measure of the responsiveness of the quantity demanded of a good to a change in its price when all other influences on buyers’ plans remain the same.;Calculating Elasticity The price elasticity of demand is calculated by using the formula: Percentage change in quantity demanded Percentage change in price ;To calculate the price elasticity of demand: We express the change in price as a percentage of the average price—the average of the initial and new price, and we express the change in the quantity demanded as a percentage of the average quantity demanded—the average of the initial and new quantity.;Figure 4.2 calculates the price elasticity of demand for pizza. The price initially is $20.50 and the quantity demanded is 9 pizzas an hour.;The price falls to $19.50 and the quantity demanded increases to 11 pizzas an hour.;The average price is $20 and the average quantity demanded is 10 pizzas an hour.;The percentage change in quantity demanded, %DQ, is calculated as DQ/Qave, which is 2/10 = 1/5. The percentage change in price, %DP, is calculated as DP/Pave, which is $1/$20 = 1/20. ;The price elasticity of demand is %DQ/ %DP = (1/5)/(1/20) = 20/5 = 4.;By using the average price and average