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Principles of Economics,
9e
; ; By
Karl E. Case,
Ray C. Fair &
Sharon M. Oster
CHAPTER 5 Elasticity
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CHAPTER 5 Elasticity
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PART I INTRODUCTION TO ECONOMICS
Elasticity
5
Prepared by:
Fernando & Yvonn Quijano
© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster
PART I INTRODUCTION TO ECONOMICS
Elasticity
5
CHAPTER OUTLINE
Price Elasticity of Demand
Slope and Elasticity
Types of Elasticity
Calculating Elasticities
Calculating Percentage Changes
Elasticity Is a Ratio of Percentages
The Midpoint Formula
Elasticity Changes Along a Straight-Line
Demand Curve
Elasticity and Total Revenue
The Determinants of Demand Elasticity
CHAPTER 5 Elasticity
Availability of Substitutes
The Importance of Being Unimportant
The Time Dimension
Other Important Elasticities
Income Elasticity of Demand
Cross-Price Elasticity of Demand
Elasticity of Supply
Looking Ahead
Appendix: Point Elasticity
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Elasticity
%A
elasticity of A with respect to B
%B
CHAPTER 5 Elasticity
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Price Elasticity of Demand
FIGURE 5.1
Changing the Slope
unit ofIsmeasure
Not a Useful
fromMeasure
poundsofto
Responsiveness
ounces changes the numerical value of
the demand slope dramatically, but the behavior of buyers in the two diagrams is
identical.
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Price Elasticity of Demand
% change in price
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Price Elasticity of Demand
Types of Elasticity
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Price Elasticity of Demand
Types of Elasticity
CHAPTER 5 Elasticity
Types of Elasticity
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Price Elasticity of Demand
Types of Elasticity
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Price Elasticity of Demand
Types of Elasticity
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Calculating Elasticities
Q -Q
2
x 100%
1
CHAPTER 5 Elasticity
Q 1
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Calculating Elasticities
change in price
% change in price x 100%
P
CHAPTER 5 Elasticity
P -P
x 100%
2 1
P 1
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Calculating Elasticities
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Calculating Elasticities
1 2
Q -Q
2
x 100%
1
(Q Q ) / 2
1 2
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Calculating Elasticities
change in price
% change in price x 100%
(P P ) / 2
1 2
P -P
x 100%
CHAPTER 5 Elasticity
2 1
(P P ) / 2
1 2
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Calculating Elasticities
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Calculating Elasticities
Elasticity Changes Along a Straight-Line Demand Curve
4 14
3 16
2 18
1 20
22 FIGURE 5.3 Demand Curve for
0
Lunch at the Office Dining Room
Between points A and B, demand is quite elastic at -6.4.
Between points C and D, demand is quite inelastic at -.294.
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Calculating Elasticities
TR = P x Q
total revenue = price x quantity
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Calculating Elasticities
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Calculating Elasticities
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The Determinants of Demand Elasticity
Availability of Substitutes
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The Determinants of Demand Elasticity
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The Determinants of Demand Elasticity
Elasticities at a
Delicatessen in the Short
Run and Long Run
The graph shows the expected
relationship between long-run
and short-run demand for
Frank’s sandwiches. Notice if
you raise prices above the
current level, the expected
CHAPTER 5 Elasticity
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Other Important Elasticities
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Other Important Elasticities
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Other Important Elasticities
Elasticity Of Supply
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Other Important Elasticities
Elasticity Of Supply
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REVIEW TERMS AND CONCEPTS
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APPENDIX
POINT ELASTICITY (OPTIONAL)
Q Q
100
%Q Q Q1 Q P1
elasticity
%P P 100 P P Q1
P P1
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APPENDIX
POINT ELASTICITY (OPTIONAL)
P P1
By substituting we get:
M 1 P1 M 1 P1 M1
elasticity
P1 Q1 P1 M 2 M 2
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APPENDIX
POINT ELASTICITY (OPTIONAL)
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