|
Lecture Notes 1-page printable lecture notes
I
Introduction
|
Unit 1 Review Elasticity measures the effect price changes on quantities purchased
|
III. Graphic Interpreting of Elasticity A. At the Extremes Elasticity measures reaction to price. Elastic is flat, quantity changes more, Inelastic is steep, quantity changes less.
|
|
B. Total Revenue derived from a Linear Demand Curve
|
|
IV. The Total Revenue Test
A. When demand is elastic, price and total revenue move in the opposite direction. B. When demand is inelastic, price and total revenue move in the same direction. C. Total Revenue Test Video has a graphic explanation. |
|||
|
Elasticity of Demand and Total Revenue |
|||
|
Elasticity |
When Price Increases |
Total Revenue |
|
|
ED >1 |
Somewhat Elastic | Quantity Changing a Lot so a lot of revenue could be lost. |
Decreases |
|
ED = 1 |
Unitary Elasticity | Quantity/Price Changing Same % |
No Change |
|
ED <1 |
Somewhat Inelastic | Quantity Changed Little so a lot of revenue could be gained. |
Increased |
|
Unit 5 R With elastic demand p and TR move in opposite directions, Inelastic the same direction We need to understand cost production to understand making a profit. |
|||
|
V. Determinates of Demand Elasticity 6 minute video |
|||
| Product Characteristics | Elastic Demand | Inelastic Demand |
 |
| Number of substitutes | Many | Few or none | |
| % of purchaser's budget | High | Low | |
| Type of good | Luxury | Necessity, Emergency | |
| Desire | No hurry | Required quickly | |
| Examples | Steak, Vacations | Salt, Bread | |
|
Unit 6 Review Substitutes, price,
necessity or luxury, budgets position determine elasticity |
|||
|
VI. Income Elasticity of Demand
is the % change in quantity demanded divided by the % change in income.
|
|
 |
VII. Cross elasticity
of demand
VIII.
Applications
E. Price Elasticity and
Government Actions
PEDs, in combination with
price
elasticity of supply (PES), can be used to assess where the
incidence (or "burden") of a per-unit tax is falling or to
predict where it will fall if the tax is imposed. For example, when
demand is perfectly inelastic, by definition consumers have no
alternative to purchasing the good or service if the price increases, so
the quantity demanded would remain constant. Hence, suppliers can
increase the price by the full amount of the tax, and the consumer would
end up paying the entirety. In the opposite case, when demand is perfectly
elastic, by definition consumers have an infinite ability to switch
to alternatives if the price increases, so they would stop buying the
good or service in question completely—quantity demanded would fall to
zero. As a result, firms cannot pass on any part of the tax by raising
prices, so they would be forced to pay all of it themselves.[38]
More generally, then, the higher
the elasticity of demand compared to PES, the heavier the burden on
producers; conversely, the more inelastic the demand compared to
PES, the heavier the burden on consumers. The general principle is that
the party (i.e., consumers or producers) that has fewer
opportunities to avoid the tax. In practice, demand is likely to be only relatively elastic or
relatively inelastic, that is, somewhere between the extreme cases of
perfect elasticity or inelasticity. ACDC Videos Tax Incidence Taxes on Producers Excise Tax
Practice
IX. Price elasticity of supply is the % change in quantity supplied divided by the %
change in price. v
is the % change in quantity demanded
divided by the % change in the price of a substitute or complement.
A. Cross elasticity is positive
for goods that are substitutes (price of hot dogs up,
quantity of hamburger sold up).
B. It is negative for goods
that are complements (price of hot dogs up, quantity of hot
dog rolls sold down).
C Near zero for independent
goods (peanuts and grapefruit)
C. Cross
Price Elasticity of Demand from tutor2u
D.
Income
and Cross Elasticity Video from ACDC Econ
E.
Low cross-price elasticity of demand means there's no incentive
to vote for more California housing 2/19/19
F.
Virtual
Economy from Buz\ed
has an elasticity calculator. Please
Share
A. Various research methods are used
to calculate price
elasticity:
1.
Test marketing
2. Analysis of
historical sales data
B
1.
Slave Redemption and Elasticity 1
2.
Slave Redemption and Elasticity 2
C.
Applied Elasticity of Demand
4 min video
D.
Selected income elasticity's
1.View
a table containing elasticity of demand
approximations
s
2. Income elasticity's are notably stable over time and across
countries.
3.
Could Price Elasticith be Increasing? in our more
competitive world
1.
High farm yields for crops with an inelastic demand cause farmers to lose
money as people don't eat a lot more so we have a federal farm program.
2.
Excises taxes increase price so the governments puts them on
inelastic goods like tobacco, alcohol, and jewelry.
a. Drugs could be next and profit will be determined
by price
elasticity of demand for drugs (How Inelastic is it?), law
enforcement savings, and the cost of helping new addicts?
b.
Econ Concepts in
60 Seconds Analyzing Excise Tax Practice
c.
Why
It's Obvious We are losing the war against drugs
d. Elasticity
and the Price of Gasoline
e.
Elasticity of Demand for Higher Education
f.
Price Elasticity of Demand at a
Private University
g.
Economics_VII_Income_elasticity_of_Demand.htm
F. Tax
Incidence Effects
A. It is a function of how factor costs
change as more is produced and the passage of time.
B. If costs (factor prices such as wages
and rent) change little as more is offered for sale at higher selling prices
then profit potential is high and supply will be
elastic.
C. Supply elasticity also increases with
time as companies have more time to adjust to higher costs.
1. Unusually high
demand for tomato's or the Chrysler PT Cruiser take time to produce and supply is
inelastic.
2. Gateway may be
able to increase the number of a new popular
model computer quickly and supply
is more elastic.
D. Gold production is costly and takes time so
price is volatile because of frequent demand changes.
E.
Selected
supply elasticity's
F. Visit
Price elasticity of supply
from tutor2u for more information
,
means change.
