chap006describingsupplyanddemandelasticities(中.ppt

Describing Supply and Demand: Elasticities Chapter 6 Laugher Curve Q. What’s the difference between an economist and a befuddled old man with Alzheimer’s? A. The economist is the one with a calculator. The Concept of Elasticity Elasticity is a measure of the responsiveness of one variable to another. The most commonly used elasticity concept is price elasticity of demand. Price Elasticity The price elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price. Price Elasticity The price elasticity of supply is the proportional change in quantity demanded relative to the proportional change in price. Things to Note About Elasticity Elasticity of demand is always negative because price and quantity demanded are inversely related—when prices rises, quantity demanded falls, and vice versa. Things to Note About Elasticity Despite this fact, economists have developed a convention and talk about elasticity of demand as an absolute value of the number. Classifying Demand and Supply as Elastic or Inelastic It is helpful to classify elasticities by relative responsiveness. Elastic Demand and Supply For elastic points on curves, the percentage change in quantity is greater than the percentage change in price. E 1 Elastic Demand and Supply Common sense tells us that an elastic supply means that quantity changes by a greater percentage than the percentage change in price. Inelastic Demand and Supply For inelastic points on curves, the percentage change in quantity is less than the percentage change in price. E 1 Inelastic Demand and Supply Common sense tells us that an inelastic supply means that quantity doesnt change much with a change in price. What Information Price Elasticity Provides Price elasticity gives of demand and supply gives information about the exact quantity response to a price change. As elasticity increases, responsiveness of quantity to price also increases. Elasticity Is Independent of Units Percentag