38 PART 2. THETHEORY OF COMPETTVE MARKETS satisfaction Rachel gets from consuming milk: I mik has @ zr price, Rachel would be wiling 20 ites por tine penigd. At €D.10 por lire, Rachel would be willing to buy 18 IHPSS. AS the pas” further, she is willing to buy fewer and fewer litres. When the price reaches € Rachel wou 9° prepares to buy sny mik at ll. This table is a demand schedule, a table that shows the regu” between the price of a good and the quantity demanded, holding constant! ‘Everything e182 that infe® how much consumers of the good want to buy. a | I demand schedule a tabetha shows he eladonhip betwaen tops ofa good andthe quent derandeg ‘The greph in Figure 3.1 uses the numbers from the table to illustrate the law of demand. By conven, price is on the vertical exis, and the quantity demanded is on the horizontal axis. The downwards gp, line relating price and quantity demanded is called the demand curve. I ‘demand curve a grep of the relationship between the price ofa good and the quantity demanded Rachel's Demand Schedule Price of mikk 1.00 ‘and Demand Curve por litre (€) The demard schedule shows the ‘quantity demanded at each price. 80 The demand curve, which graphs on ZI teconnd se hs hou tenon sracerte” PFRSERERL|o90 oz | ‘good changes as its price varies. Because a lower price increases the quantity demanded, the 040 demand curve slopes downwards 030 from left to right 020 0.10 10.12 14 16 18 2 Quantity of milk demanded (ites) Quantity of milk demanded (litres per month) Price of milk por litro (¢) 0.00 20 0.10 8 020 16 0.30 4 040 2 050 0 0.60 8 0.70 5 0.80 4 0.90 2 ° 100~~ rice, Tho markt demand cng , i et 80 tres of mit bat arg Bachan atin rc, eos, 15 es foarganybe pepe 7° it facia mand + cet ik 100 facia pert) 0.90, price lk 100 ree] om exit (090 Tt oe oe ow aso t4 050 ao 050 oa oxo 090 bee pa es 0.10; 7 [D was) | o. soe 2 6H Lee 8 ore et ore seaee comet cit ornarced ie) erence Market demand Price of mi 100) per ite (2) 0.90] 80] 070} 60 050] 40] 030} 020 010 02 4 6 B10 12 16 16 18 20 22 26 26 26 30 ‘Quant of mk inn joanna ya sigan 0 30 ® 3 2 6 8 24 1 7 a 2 6 8 2 5 18 - 4 2 6 5 i 4 2 . 2 ‘i s ° . 3 Figure 33 illustrates shifts in demand. Any change that increases the quentty demanded at every price, such 9s our imaginary research report, shifts the demand curve to the right and is called an increase it Gemard hry change tet reduces the quatty demanded at very pce shits the demand cutve tothe left end is called a decrease in demand, DadCHAPTERS THE MARKET FORCES OF SLPLY AND DEMAND a9 FIGURE 3.3 shifts inthe Demand Curve Ary hare tat raises the quay ht yes wish to purchase at agen rice ait the demand cue tothe riot Ary change ht owes the quantity tha bers wih to purchase at agen prc shits he denardcune othe lt. ‘Quantity of mil emanates) ‘The following is a short summary of the main factors affecting demand, changes in which cause a shift in the demand curve. Prices of Other (Related) Goods Suppose thatthe price of mik fas. The law of demand says that you will Buy more milk, At the same time, you will probebiy buy less fruit juice. Because milk and fruit juice ‘xe both refreshing drinks, they satisty similar desires. When @ fall in the price of one good reduces the ‘demand for another good, the two goods are called substitutes, Substitutes are often pairs of goods that ‘are used in place of each other, such as butter and spreads, pullovers and sweatshirts, and cinema tickets {and fim streaming. The more closely related substitute products are, the more effect we might see on demand ifthe price of one of the substitutes changes. | subetntos vo gr fo hh annette pe foe eal oan rcs inte dara fect aie wes) Now suppose thatthe price of breskfast cereals falls. According tothe law of demand, more packets of breskiest cereals will be bought. When this happens, we mignt expect to see the demand for milk increase as well, because breakfast cereals and mik are used together. When a fallin the price of one 400d raises tho domand for another good, the two goods are called complements, Complements are atten pais of goods that are used together, such a petrol and cas, computers and software, bread and cheese, stewbernies and eream, and bacon and eggs. J] rrr crntnreneten ore lads wa decease inte demande babar ‘SELF TEST what type of relationship do apps and smartphones have? If the price of smartphones increases, ‘nhat would you expect to happen tothe demand for apps? Skotch a diagram to illustrate your answer, Income Changes in incomes affect demand. A lower income means less to spend in total, so you would have to spend less on some - and probably most ~ goods. Equally if income rises, then itis likely that ‘demand for many goods will also rise. If the demand for a good falls when income fals or rises as income rises, the good is called a normal good, | good god fr whch, ceteris aritus, an increase inrcome leat to annesen demand fend vie vers)CHAPTER. THE MAAKET FORCES OF SURLY ano DzMaa 4 to the market. By contrast, when the price of mks low, the business i ss proftable endo sl willing to produce less milk. Ata low price, some sellers may even choose to shut. down, and thei ty uppled falls t02r0. Because the quantity euppiedrises asthe pric rise and fal 0 hs prefs, ne ay ihat the quent supplied is positively related tothe pice ofthe good. As vith dernan, te porvasieness of this relationship between price and quantity supplied led to it being called the law of supply. ‘quantity supplied the amount ofa good that sales are wing and abl to sol at diferent prices Jaw of supply the claim that, coer pause quantity supe god rises whon the pce of gpd ses ‘The table in Figure 3.4 shows the quantity that Richerd, @ milk producer, is willing to supply at various prices, At a price below €0.10 per litre, Richerd does not supply any milk at all. As the price rises, ne is wiling to supply a greater and greater quantity. This is the supply schedule, a table that shows the relationship between the price of a good and the quantity supplied, holding constant everything else that influences how much producers of the good want to sell. I “supply schedule a tbe that sons th relainshipbavoan te rice of gcd and the quonty spn 1m the table to illustrate the law of supply. The curve ‘The graph in Figure 3.4 uses the numbers fror ply curve. The supply curve slopes upwards from left quantity supplied is called the supr relating price and to right because, other things equel, a higher price means a greater quantity supplied. i ‘supply curve a graph ofthe relationship between the pica of god and the quant upped roof ik pet 100 Richard's Supply Schedule and H20 .99 Supply Curve ; hat The supply shed shows the quantity eee supple teach rc. Tis supa cre which paps the sul schedule, shows 060 ‘aw the quant supplied othe good a changes as spice vais, Bacauseahiaher oe pie inreass the quant supplied. He oe Supply cue slopes upwerds: oe a0) i 2 4 16 18 2 : : Quantity ot ik suppiog (000 Bes er month) supple (000 litre ste (e)__uantty of ic supplied (000 IES Price of milk pet : 0.00 Q 0.10 9 020 2 030 q 00 s 10 rr 1“ 16 18 0.60 0.60 0.70 0.80 0.90 100(CHAPTERS THE MARY FORCES OF SUPRY AND CeMaN 4 of these inputs rises, producing milk is less profitable and firms supply less milk. If input prices rise ubstentially 2 firm might shut down and supply no milk a all If input prices fall for some reason, then produetion may be more profitable and there is an incentive to supply more at each price. Thus, the supply ff 2 good is negatively related to the price of the inputs used to make the good. it eee] 'Morket Supply asthe Sum of Individual Supplies The quantity supoied na markt she sum ofthe quanti supa bya te sls at each rie. Tus, the mare up curs found by cing hoot the indviual supply cures. pice of £50, chads wilingtsuply 00 lite ofl por man and Megan swig to supply 000 lr per mort. To quatty spol nthe market tis price is 100 lives ar month. Price of milk 1.00 Toasts Spe Price of milk 100 Geral 7 pert (0.90 peritie (0.0 5 esa 090 ee! oe Srasaay eo 60 ‘a 050 na oo oy 030 020 020) 0.10 010 oF 4 6 8 10 12 14 16 18 20 ° 6810 1215 1618-20 ‘Quantity of rik ‘Quantty of mike supplied (000 tes por month) suppleg (000 lites per month) 0.30 Market supply Price of mike 1.00, perlite (€) 0.90 0.80 070 080 050 040 030 020 H 010 L 0 2 4 6 8 10 12 14 16 18 20 22 24 26 20 30 ‘Quantity of mik suplid (000i por mont) ‘Quontty Supplied (000¢ litres por month) Mogan = Price of milk por litre (€) Richard + ‘0.00 0.10 0.20 030 0.40 050 060 070 80 0.90 100INE MARKETS ‘a PART? THETHEDAY OF COMPETT curve. S hittin tho Supprycurre COTES suey gun 5 suply “Anychenge that se he pet ch al ‘uantiy that seers wish om prods at agen pice sts ‘he suply curve tne ight ANY change that lowers the quand thar solers wish to produce at 2 pope sis th sey ‘othe et ‘Guanity of mile ‘supplied (itres) g to the expectations of producers about fay, for example, may depend on its can vary accordin ture, the firm might invest in more ‘a farm supplies tod 1s of Producers Output levels milk to rise in the fu Expectation erecta state of the market. Tho amount of mi ae tations ofthe future. ft expects th pice of eerste capacty orineease the 320 ofthe Ped. umber of Sellers Hf there ara more sellers in the market aes Equally, @ numberof dary fms closed dovin, then incre cesittne number of sels in a market wil be determined PY Mipatin and tne ease of entry into and ext fom the marke then it makes sense that the supply would tof milk supplied it is likely that the amoun the profitability of the product in ‘and graph the implied supply curve. Give an ‘ST Make up an example of a supply schedule for pizza y curve. Would a change in price shift the supply curve? SELF TE: ‘example of something that would shift his supp! Remember. A change in any factor affecting supply, other than price, is referred to as @ change in cuppa change in supply s represented graphically aso shift in the supply curve, either tothe right (an increase in supply) or the left a decrease in supply). ‘As with @ demand curve, @ supply curve can be represented algebrai , ically. In economics the inverse supply function is used, which represents price on the vertical axis and quantity supplied, the dependent saree ote hoa ns sup curve mht be epresanted by he SUPP function P= 8 + 20, Tho constant, 8, gs to vr rep th po at which the supply curve cuts the vertical axis and Be costoan of 20, mesos sono te spy uve Gen by th change in pice died by e ee eer ees ° ur inverse supply function we angng woud ve 20, = 8. Therelor, O, would be 4 If P= 20, hen uentty seeped vould be 3 = 20, then quantity supplied would be , given by 20 = 8 + 2Q,, Therefore, Q; would be 6.‘CHAPTER THE MARKET FORCES OF SUPPLY AND DEMAND 45, SUPPLY AND DEMAND TOGETHER Heving enelyzed supply and demand separetely, we now combine them to see how they determine the ‘quantity of @ good sold in a market and its price. Equilibrium is defined as a state of rest, @ point where there is no force acting for change. Economists refer to supply and demand as being market forces. Figure 3.7 shows the market supply curve and market demand curve together. In the market model, the relationship between supply and demand exerts force cn pice, If supply is greater than demand or vice versa, then there is pressure on price to change. Market equilbrium occurs when the emount consumers wish to buy at particular price is the seme as the amount, sellers are wiling to offer for sale at that price. The price at this intersection is called the equilibrium cr market price, and the quantity is called the equilibrium quantity. In Figure 3.7 the equilibrium price is €0.40 per litre, and the equilibrium quantity is 7,000 litres of mik bought and sold per day. ‘equilibrium or market price the price whore tho quantity demandes the same as the quantty supolied ‘equilibrium quantity the quantity tought and sld atthe equilibrium price Price of ik ‘Tho Equilibrium of Supply and perlite () Demand The eqilitvium is found where the supply and demand cures intersect “At the equilisium price, the quantity supoid isthe same as te quantity lmartid. Hare tho equim price {i €040 por ire of mk at his pice, sols are ling to offer 7000 lites of rl er da for sal and buyrs wish to purchase 7,00 lives of ilk pr day eT sew N21 Quantity of mik bought and {At the equilibrium price, the quantity of the good that buyers are willing and able to buy exactly balances the quantity that sellers are wiling and able to sell. The equilbrium price is sometimes called the market ‘leering price because, at this price, everyone in the market has been satisfied: buyers have bought all they want to buy, and sellers have sold al they want to sell; there is no shortage in the market where ‘demand is grester than supply and neither is there any surplus where supply is greater than demand. ‘The market wil remain in equilbrium until something causes either a shift in the demand curve or a shift in the supply curve (or both). If one or both curves shit, at the existing equlibrium price there wil ow be either @ surplus or a shortage, The market mechanism takes time to adjust ~ sometimes it can be very quick (which tends to happen in highly orgenized markets ike stock and commodity markets) and ‘sometimes it is much slower to react. When the market is in disequilibrium and @ shortage or surplus exists, the behaviour of buyers and sellers acts as a force on price[8 PART2.THETHEOAY OF COMPETTIVE MARKETS lly while demang jane! (b), where supply falls substantial thay sagem yo rl eh noe oS k ‘cin ymbiguous (that is, it cg, Of milk, but their impact on the amount of milk bought and sold is ambiguous (that it ay either way). [AShitt in Both Supply and Demand (i) ‘ Tr re stows smatanens inoeas tad and ders in sup npn al te equim pire fm 0, ang the eqiltrumquanty rises om 0, to, pane the euitvum pce again ses rm to, bu the equilériam quantify ‘om, 100, roe of ik ee, peri (€) pore (@) New cquitrium Ds Initial equitorium oe Quantity of ik Oe ‘Quant of mi bought ought an sold ros ‘and sol ies (a) Price rises, quantity rises Pe" S8Y) (®) Price rises, quantity fails P38) Example 4: A Change in Both Supply and Demand (i) We ere now going to look at a slighty diffrent scenario but with both supply and demand changing together. Assume that forecasters have predicted ‘a heatwave for some weeks. We know thet the hot weather is likely to increase demand for milk and 30 the demand curve wil shit tothe right. However, sellers’ expectations that sales of ik wil increase 2s 2 result ofthe forecasts mean that they take steps to expand production of milk. This would lead toe shit ‘of the supply curve tothe right - more milk is now offered forsale at every price. To analyze this particult combination of events, we again follow our three steps: 1. We determine that both curves must shift The hot weather affects the demand curve because it alters the amount of milk that consumers want to buy at any ven price, At the same time, the excecttors of produces alter the suply curve for mik because they change the amount that lame weree seh any given pice 2: Bo dena ard spl caves so he ot Fg 3.1 ustates thew shits hora ot shove tree posstio outcomes Putri seas ae os a derand rd sul sits. n pana), where demand ernaea setconioi ne ne ees ee lit, tho equirium pice and quetty bot is. By contrast, inpanel {oh wherseenoy anes ear valy wl and ees st it, the equiva pie fsb the eailbtum quant sos, nel mmc eran dipper an ealrum ce dns ot coe Fa Se eneutbougtend sold exh casei higher nthsintance te ehsclon wc eae a 4‘nara, he equim price Both Supply and Demand (ii) vista iD ries rom oP andthe equi quant J 1, 100;. ane re ron 0 pe eee ‘sm aq fu ques fo erg Sy fi lee ! ; 0, ey, Dy } oF Oe Quantity of milk : ae agree a cumin @ b) ae alan ‘Dy : 2 ovary of ik © ‘Summary We have just seen four examples of how to use the model of the market which uses demand and supply iicrium. Whenever an event shits the demand curve, the supply curve, curves to analyze a change in eal So et coves, you can use the model to predict how the event wil ater the amount bought Set calm andthe pric at which the goods Bought and sol. Table 3.1 shows th predicted aoe eena ere combination of shits in the two curves. To rake sure you understand how to uso the oe vor pick afew entries inthis table and make sure you can explain to yourself why the table contains the prediction it does. “asa exampla, consider the allocation of property onthe beach, Because the arnount ofthis property islmted: not everyone ean enjy the luxury of living by the beach. Who gets this resource? The answer iss whoever s wing and able to pay the price. The price of seafront property adjusts until the avantity of property demanded balances the quantity supplied. In rarket economies, prices can be the mechanism for rationing scarce resources.\ i id changes: Inelastic Por nats proportionately smal In iditure ‘Changes When Price itt a ae sp tnt WEE He Td i ts HO Mi talent (eed FP qu nce sonore Price Expenditure = €240 tow Total Expenditure Changes When Price Changes: £108 Demand ee cep acs a ee ary demas vr ans foes WES wus Thestoe, ttl een eri eared al ams 20,5 tal expense als fam £200 to E100. Price Price f= 4 — | Demand Demand See 00 ’ / | | | 1 expnditure = €100 ° 2 Guaniy oO aan ‘Although the examples in these two figures are extreme, they illustrate a gan . fig , they illustrate a general rule: ‘+ When demand is price inelastic (a price elasticity less then 1), price and total expenditure move in the sm ‘ asticity Ie , price | expenditure move it ‘+ When demand is price elastic (e price elasticity greater than 1), price and total expenditure move in dem (2 price elasticity gr i total ture move i If demand is unit city ex rit price elastic fap ifore wis Price elasticity exactly equal to 1), total expenditure ture remains constentCHAPTERS THE Maske Foe OF SUPPL AN DENK 61 Elasticity and Total Expenditure along a Linear Demand Curve Demand curves can be linear (straight) or curvilinear (curved). The elasticity at any point along a demand curve will depend on the shape of the demand curve. A linear demand curve has a constant slope, Slope is defined as ‘tise over rur’, which here is the ratio of the change in price rise, or tho change in the y axis} t0 the chenge in quantity run, of the change in the x axis). The slope of the demand curve in Figure 3.16 is constant because each €1 increase in price causes the same two-unit decrease in the ‘quantity demanded. The slop of linear deme cure constant, butts elastiity is aot. The domand sed in the table was used to catuat the rice east of demand by the midpoint method. At pints with fw rice and high quanti, the demand cue is inelastic. At points wth high pice and low quantity, the demand cure is last. Jepgmon Petes Poeun pe neo any SEVER RSE Mees iy : nae is i és BRR olde eae 46 8 10% uentiy Even though the slope ofa linear demand curve is constant, the elasticity is not. The reeson is thatthe slope isthe rato of changesin the two variables, whereas the elastic isthe ratio of percentage changes in the two variables. The table in Figure 3.16 showrs the demand schedule forthe linear demand curve in the graph. The table uses the midpoint method to calculate the price elasticity of demand. At points vith @ lowe price and high quantity, the demand curve is price inelastic. At points with a high price and low ‘quantity, the demand curve is price elastic. The table also presents total expenditure at each point on the demand curve, These numbers illustrate the relationship between total expenditure and price elasticity. When the price is 1, for instance, demand is inelastic and a price increase to €2eises total expenditure. When the price is €5, demand is elastic, and 2 price increese to €6 reduces total expenciture. Between €3 and €4, demands exactly unt price elastic and totel expenditure isthe seme at these two prices.wets 6 PART? ‘me Taeony oF COMPETITVE MAM ing thatthe scale used forth aes The Pic Elastic OSU sae sppyvone en beled : stciy ne th mia ea ao paras CGE ae {oy nelatc supply: Elastics oes than : sc supply Elastic equa! (a) Portect inl surely Sa 1 5s a (c) Unit elastic supply: Elasticity equals 1 (d) Elastic ‘supply: Elasticity. ‘is greater thant ‘Supply ‘supply ' | : | I | Jin price... | | L | L | 0 100 > 200 ‘Quantiy 2. leads 0 a 22% Increase in quantity supplied. 2... leads to a 67% increase in quantity supplied. (c) Portecty elastic supply: Elasticity equals infinity rica Cc o 3° Ata price below €4, Sen, quantity suplied is ero Figure 3.18 presents @ numeri example of midpoint method and the numbers have beeen eam: In each ie Ese ee have been rounded for convenience. When t ae according to the midpoint method), the quantity coppheicn eect lied rises from 100 t0 200 (867 per cent increas ¢), Because quanti ‘curve has elasticity great enna eet Proportionately more th fan the price, the supply(CHAPTER THE MARKET FORCES OF SUPLY AND DEMAND 67 By contrast, when the price rises from €12 to €16 (a 22 per cent increase), the quantity supplied rises from 600 10 525 (a5 per cent increase) In this case, quantity supplied moves proportionately less than the price, so the elasticity is less than 1 ERS ow the Price Elasticity of Supply Can Vary ‘Bacase fms often have a maxim cape for padvto, the lst of supply maybe very high ato level of quantity supplied and ver lw a high lev of quant supped. Here, an Inreate npr rom €5 0 €4 inreases tho quay supplied fom 109 0200, Because the ncreace in quay supplied of 67 porcon leonputed using te midpoint mettd) is larger han the increase ingricof 29 per cent, he supply cave slat in ths rang. By Contrast, when tho pice rises ram €12 to 5, the quant sipied ‘ae ony fam 500 to 525. Bocauso tha rerease quantity sunplie of per conti sal than the nese price of 22 percent to supply cune is inlastic ins ange 500 625 Ouantly SELF TEST Dofine the prc inthe long run from inthe short run. Total Revenue and the Price Elasticity of Supply When studying changes in supply in @ market we are often interested in the resulting changes in the total revenue received by producers. In any market, total revenue received by sellers is P x Q, the price of the good times the quantity of the good sold. This is highlighted in Figure 3.19, which shows an upwards sloping supply curve with an assumed price of €5 and a supply of 100 units. The height of the box under the supoly curve is P and the width is Q. The area of this box, P x Q, equals the total revenue received in this market. In Figure 3.19, where P = €5 and Q = 100, total revenue is €5 x 100 or €600. sot revenuo te anc ive by ells of rd canted sth pf te god ies he any ls FIGURE 3.19 ‘The Supply Curve and Total Revenue The total amount received by sles equals the area ofthe box under the demand eure, P X 0. Here, ata price of€5, the ‘quantity supplied is100 andthe total revenue is 500. ‘Quantity(68 PART2.THE THEORY OF COMETIVE MARKETS ice changes, depending on the price elasticity of SUPP. If sup, price inelastia, asin Figure 2.20, then an increase in price which is roparsoaste aoe cai t i €4 to €5 caus ied tose increase in total revenue. Here, an increase in price from : ei fem 80 to 100, and so total revenue rises from €320 to €500 (assuring the firm sells the adsitens supply) Total revenue will change as pri es: Inelastic Supply How Total Revenue Changes When Price Chang “ to an inereaso in quant With an inelastic supply cue, an increase in price leat total revenve the produc of price and quantity) increases. Here, an incre rom 0 t0100, andtotal revenue rises fom €320 to €50. poled thats proportionately smaller. Therefor, ‘aso in price frome 105 causes the quantity supriied tose rico Price ie ‘Supply ae Roverua = €500 If supply is price elastic then 2 similar increase in price brings about a much larger than proportionate increase in supply. In Figure 3.21, we assume a price of €4 and @ supply of 80 with total revenue of €320. Nowa price increase from €4 to €5 leads to a much greater than proportionate increase in supply from 80 to 10 with total revenue rising to €750 ~ again, assuming the firm sells the additional supply. How Total Revenue Changes When Price Changes: Elastic Supply Wit rite elesti supply cune, an increase in price lead to an increase in quantity supplied that is proportionately lerger. Therefore, {b1al revenue (the product of price and quantity) increases. Here, an increase inthe price from €4 to€5 causes the quantity supplied to rise fom 60 t0 180, and total revenue rises from €320 to €750. Price Quantity Quantity[CHAPTERS THEMARKETFORCES OF SUPPLY AN DEMAND APPLICATIONS OF SUPPLY AND DEMAND ELASTICITY Why is it the case that travel on the train at certain times during th other times? Why, despite the increase in SNe ross tres ante / i in productivity in agriculture, have farm Lan , have farmers’ incomes gone down, on mee enya Aa ce aurora mg sah ineomnen, et both q motets and the force of suppl and mene. An undestendng of arly sie part of the answer to these and many other questions. Seer Why Does the Price of Train Travel Vary at Different Times of the Day? ey Varies at different times dur i a ee snc oberangasoun seme 3) eres re emo journey leaving at midday the price is between £6 and £32 (€6.80 and €37:22).Tein ‘operators know that sat amand for al travel between 6.00am and 2,008m is higher than during te daytime, but tey so Kron! are cery commuters have choices about when they arve at work orto meetings, conferences and £07 1 ual can use other forms of transport such as thei car ora coach but the train is ofan et comenient, £0 the number of substitutes is considered low. The pre elastity of demand travel early coring, therefore, s relatively ow compared to at micy. Inthe marin, ta meee know that in re sain wil be mostly teken and there willbe very fev eft empty, whereas Aare ‘the day it's much seat ot inet tains wil be running with empty seats. Knowing tet there's 2 Stee Pr elasticity of ro ney ane thet rin operators can maximize revenue at hese diferent es charging afferent prices. rma 3.22 shows the situation inthe market fortran evel Pana a ‘the demand and supply for tickets between Birmingham and Lon areend 9.00am. The demand curve Dis relatively don between 6.0 So. indeating that the price elasticity of demend is relatively low. At a price of £80, 1000 tickets are bought and as a result the Inmany countries the price ofa train journé tor is £80,000. total revenue for the train operat wo mejores. Te demand for train rave they have few altematives and have 10 Gree rice Sensitivity in the Passenger Train Market Prt soprasonts te mrt fain reel enveen 5 and 9am benvsen Pal eat pie lst ~ passengers ae Seer ek in to meetings. The etna ot a emanate soda Te paar sees ee sence ta rain peat conied 0 hae je dr serve pce 10 £40, corard would 607 rd the total rovenue would be £32 Price of . tain texts (©) ay Guanity of ran tickets 00 ‘bought and sold iy of ain tickets ind sold ‘Quant i bo Panel () 7,000 Panel (a)