Transcript Δ Q - cloudfront.net

Elasticity
Elasticity shows how sensitive
Quantity is to Change in Price.
THE LAW OF DEMAND SAYS...
Consumers will buy more when prices
go down and less when prices go up
HOW MUCH MORE OR LESS?
DOES IT MATTER?
3
4 Types of Elasticity
1.Elasticity of Demand
2.Elasticity of Supply
3.Cross-Price Elasticity
(Substitute or Complement)
4.Income Elasticity
(Normal or Inferior)
1. Elasticity of Demand
Inelastic
Ex.
Elastic
% Δ Q
% Δ P
Price
Ex.
Price
20%
5%
Quantity
35%
Quantity
Elastic or Inelastic
Explain why for each of the following.
1. Salt
2. New Cars
3. Pork Chops
4. European Vacation trip
5. Insulin
6. Insulin at one of four drugstores in a
shopping mall.
6
1. Elasticity of Demand
Elastic
Inelastic
1. Elasticity of Demand
Elastic
Inelastic
1. Elasticity of Demand
Inelastic
Elastic
% Δ Q
% Δ P
Price
20%
Unit
Elastic
Inelastic
1
20%
Elastic
Quantity
1. Elasticity of Demand
Inelastic
TR = P x Q
Elastic
Is the range between A and B,
elastic, inelastic, or unit elastic?
Total Revenue 10 x 100 = $1000
Total Revenue 5 x 225 = $1125
Price
10
A
Price decreased and TR increased,
so…
Demand is ELASTIC
B
5
100
225
Quantity
% Δ Q
% Δ P
Is the range between B and A,
elastic, inelastic, or unit elastic?
Total Revenue 10 x 100 = $1000
Total Revenue 8 x 110 = $880
Price
10
A
Price increased and TR increased,
so…
Demand is INELASTIC
B
8
100
110
Quantity
% Δ Q
% Δ P
2. Elasticity of Supply
Inelastic
Ex.
Elastic
% Δ Q
% Δ P
Price
Ex.
Price
20%
5%
Quantity
35%
Quantity
2. Elasticity of Supply
Inelastic
Elastic
% Δ Q
% Δ P
Price
20%
Unit
Elastic
Inelastic
1
20%
Elastic
Quantity
% Δ Q
% Δ P
QBig-Qsmall
(QBig+Qsmall)/2
Price
15
A
B
5
100
=
| Δ Q |
(Q1+Q2)/2
| Δ P|
(P1+P2)/2
220
PBig-Psmall
(PBig+Psmall)/2
Quantity
% Δ Q
% Δ P
=
QBig-Qsmall
(QBig+Qsmall)/2
PBig-Psmall
(PBig+Psmall)/2
Price
15
220-100
(100+220)/2
A
B
5
100
220
15-5
(15+5)/2
Quantity
=
120
160
10
10
3. Cross-Price Elasticity
Complement
Substitute
% Δ QB
% Δ PA
18
3. Cross-Price Elasticity
Complement
Substitute
% Δ QB
% Δ PA
Complement
0
Substitute
19
4. Income Elasticity
Inferior
Normal
% Δ Q
% Δ I
20
4. Income Elasticity
Inferior
Normal
% Δ Q
% Δ I
Inferior
0
Normal
21
Elasticity Practice
Elasticity
Price
1.25
1.00
0.75
0.50
0.25
Quantity
200
250
300
350
400
•
The demand for video game tokens at the
neighborhood arcade. Using the midpoints formula,
between $.50 and $.25 the price elasticity of
demand equals______?
•
Suppose that Price = .75 currently. A decrease in
price will do what to total revenue?
Price
10.50
9.50
8.50
7.50
6.50
5.50
4.50
Quantity
220
260
300
340
380
420
460
• Demand for prime rib. Using the midpoints formula,
this demand curve is unit elastic between _______?
• This demand curve is price elastic from _______ to
_______.
• Suppose that Price = $6.00, A 3% decrease in quantity
demanded would require a ____ increase in price.
• Suppose that Price = $6.50 currently. A decrease in
price will do what to total revenue.
AP Micro Free Response
Elasticity FRQ-Assume the following about laptop and desktop computers:
• The demand for computers is price inelastic
• Laptop and desktop computers have a cross price elasticity coefficient of +3.6
• Computers and DVD burners have a cross price elasticity coefficient of -0.8
• All computers have a income elasticity coefficient of +2.3
(a) Using correctly labeled graphs, show the impact of a change in technology that improves only the production of
laptop computers on the following:
i. Price of laptop computers
ii. Output of laptop computers
iii. Total revenue of laptop computer producers
iv. Price of desktop computers
v. Output of desktop computers
(b) Using new correctly labeled graph, show the impact of a decrease in price of DVD burners on the following:
i.Price of computers
ii. Output of computers
(c) Using new correctly labeled graphs, show the impact on the following when income increases by 30%:
i.Price of computers
ii. Quantity of computers
iii. Price of DVD burners
iv. Quantity of DVD burners