Transcript (a) S

ECONOMICS
SECOND EDITION
ROBERT E. HALL
STANFORD UNIVERSITY
MARC LIEBERMAN
NEW YORK UNIVERSITY
CHAPTER 4
WORKING WITH SUPPLY
AND DEMAND
1
Figure 1 Price Ceilings in the Market for Maple Syrup
Price
per
Bottle
S
T
$4.00
E
3.00
2.00
R
V
D
4,000 5,000 6,000
ECONOMICS 2e / HALL & LIEBERMAN
CHAPTER 4 / WORK WITH SUPPLY AND DEMAND
© 2001 South-Western
Number
of Bottles of
Maple Syrup
2
Figure 2 A Price Floor in the Market for
Nonfat Dry Milk
Price
per
Pound
S
$1.01
0.90
K
J
A
D
180 200 220
ECONOMICS 2e / HALL & LIEBERMAN
CHAPTER 4 / WORK WITH SUPPLY AND DEMAND
© 2001 South-Western
Millions
of Pounds
3
Figure 3 Reinterpreting the Supply Curve
Price
per Unit
S
$1.50
.90
B
A
60
ECONOMICS 2e / HALL & LIEBERMAN
CHAPTER 4 / WORK WITH SUPPLY AND DEMAND
© 2001 South-Western
120
Quantity
4
Figure 4 The Market for International Air Travel
Price
per
Ticket
S´
S
$800
B
730
700
A
D
10
ECONOMICS 2e / HALL & LIEBERMAN
CHAPTER 4 / WORK WITH SUPPLY AND DEMAND
© 2001 South-Western
11.3
Tickets
(Millions
per Year)
5
Figure 5 Calculating Price Elasticity of Demand
% QD
Movement Along
Demand Curve
Point A to
Point B
% P
Elasticity of
Demand
(500,000 – 600,000)/650,000
($1,500 – $1,000)/$1,250
– 18.2%/40%
 – 0.182
or – 18.2%
 0.40
or 40%
 – 0.46
($3,500 – $3,000)/$3,250
– 66.7%/15.4%
 0.154
or 15.4%
 – 4.33
Point C to (100,000 – 200,000)/150,000
Point D
 – 0.667
or – 66.7%
Price
per
Laptop
D
$3,500
C
3,000
2,500
2,000
B
1,500
A
1,000
D
100,000 200,000 300,000 400,000 500,000 600,000
ECONOMICS 2e / HALL & LIEBERMAN
CHAPTER 4 / WORK WITH SUPPLY AND DEMAND
© 2001 South-Western
Quantity
of Laptops
6
Figure 6 Elasticity and Straight-Line
Demand Curves
Price
Equal dollar increases
(vertical arrows)
are smaller and
smaller percentage
increases.
3
2
1
Equal quantity decreases
(horizontal arrows) are
larger and largerpercentage
decreases.
D
Quantity
ECONOMICS 2e / HALL & LIEBERMAN
CHAPTER 4 / WORK WITH SUPPLY AND DEMAND
© 2001 South-Western
7
Figure 7 Extreme Cases of Demand
(a)
(b)
Price
per
Unit
Price
per
Unit
D
$4
$4
3
3
2
2
1
1
20
40
60
80
100
D
20
40
60
80
100
Quantity
Quantity
Perfectly Inelastic
Demand
ECONOMICS 2e / HALL & LIEBERMAN
CHAPTER 4 / WORK WITH SUPPLY AND DEMAND
© 2001 South-Western
Perfectly Elastic
Demand
8
Table 1
Effects of Price Changes on Expenditure
Where demand is:
A price increase will:
A price decrease will:
Inelastic ( |
| <1)
unitary elastic ( |
| = 1)
increase expenditure
cause no change in
expenditure
decrease expenditure
decrease expenditure
cause no change in
expenditure
increase expenditure
elastic ( |
| >1)
ECONOMICS 2e / HALL & LIEBERMAN
CHAPTER 4 / WORK WITH SUPPLY AND DEMAND
© 2001 South-Western
9
Figure 8 Elasticity and Total Expenditure
Price
per
Laptop
$3,500
3,000
2,500
2,000
B
1,500
A
1,000
D
500
100,000 200,000 300,000 400,000 500,000 600,000
ECONOMICS 2e / HALL & LIEBERMAN
CHAPTER 4 / WORK WITH SUPPLY AND DEMAND
© 2001 South-Western
Quantity
of Laptops
10
Table 3
Some Short-Run Price Elasticities
of Demand
Specific Brands
Tide Detergent
–2.79
Pepsi
Coke
–2.08
–1.71
ECONOMICS 2e / HALL & LIEBERMAN
CHAPTER 4 / WORK WITH SUPPLY AND DEMAND
© 2001 South-Western
Narrow Categories
Broad Categories
Transatlantic Air Travel –1.30
Tourism in Thailand
–1.20
Ground Beef
–1.02
Pork
– 0.78
Milk
– 0.54
Cigarettes
– 0.45
Electricity
– 0.40 to – 0.50
Beer
– 0.26
Eggs
– 0.26
Gasoline
– 0.20
Oil
– 0.15
Recreation
–1.09
Clothing
– 0.89
Food
– 0.67
Imports
– 0.58
Transportation – 0.56
11
Table 4
Adjustments After a Rise in the Price
of Gasoline
Short Run (a few months or less)
Long Run (a year or more)
Use public transit more often
Arrange a car pool
Get a tune-up
Drive more slowly on the highway
Eliminate unnecessary trips (use mail order
instead of driving to stores; locate goods by
phone instead of driving around; shop for
food less often and buy more each time)
If there are two cars, use the more
fuel-efficient one
Buy a more fuel-efficient car
Move closer to your job
Switch to a job closer to home
Move to a city where less driving is required
ECONOMICS 2e / HALL & LIEBERMAN
CHAPTER 4 / WORK WITH SUPPLY AND DEMAND
© 2001 South-Western
12
Figure 9 The War on Drugs
(a)
(b)
Price
per
Unit
S1
Price
per
Unit
P2
A
P1
P1
(c)
S2
B
S1
Price
per
Unit
A
A
P1
P3
D1
Q1
Quantity
ECONOMICS 2e / HALL & LIEBERMAN
CHAPTER 4 / WORK WITH SUPPLY AND DEMAND
© 2001 South-Western
S1
C
D1
Q2 Q1
Quantity
D1
D2
Q3
Q1
Quantity
13
Figure 10
Elasticity and the Excise Tax on
International Air Travel
Price
per
Ticket
Price
per
Ticket
S´
D
S
$830
S
B
730
$730
A
11.3
ECONOMICS 2e / HALL & LIEBERMAN
CHAPTER 4 / WORK WITH SUPPLY AND DEMAND
© 2001 South-Western
Tickets
(Millions
per Year)
B
A
7.0
11.3
D
Tickets
(Millions
per Year)
14
Table 5
Some Income Elasticities
Good or Service
Fresh Fruit
Computers
Transatlantic Air Travel
College Education
Cigarettes
Chicken
Pork
Fresh Vegetables
Tooth Extraction
Ground Beef
Bread
Potatoes
ECONOMICS 2e / HALL & LIEBERMAN
CHAPTER 4 / WORK WITH SUPPLY AND DEMAND
© 2001 South-Western
Income
Elasticity
1.99
1.71
1.40
0.55
0.50
0.42
0.34
0.26
–0.13 to 0.47
–0.20
–0.42
–0.81
Good or Service
Income
Elasticity
Imports
2.73
Transportation
1.79
Recreation
Clothing
Food
1.07
1.02
0.60 to 0.85
15
Table 7
Some Cross-Price Elasticities
Products
Margarine with price of butter
Pepsi with price of Coke
Coke with price of Pepsi
Ground beef with price of beef table cuts
Ground beef with price of poultry
Electricity with price of natural gas
Theater with price of all other lively arts
Entertainment with price of food
ECONOMICS 2e / HALL & LIEBERMAN
CHAPTER 4 / WORK WITH SUPPLY AND DEMAND
© 2001 South-Western
Cross-Price Elasticity
1.53
0.80
0.61
0.41
0.24
0.20
0.12
–0.72
16
Figure 11
The Market for Food
(a)
(b)
Price per
Unit of
Food
Sold
technology
Price per
Unit of
Food
SBad
Weather
Snew
technology
A
P1
P1
P2
P2
B
SGood
A
Weather
B
D
Q1 Q2
ECONOMICS 2e / HALL & LIEBERMAN
CHAPTER 4 / WORK WITH SUPPLY AND DEMAND
© 2001 South-Western
D
Quantity
of Food
Q1 Q2
Quantity
of Food
17
Figure 12
Price
per
Examination
The Market for Health Care
with Coinsurance
D´
$100
S
D
B
70
50
A
100,000
ECONOMICS 2e / HALL & LIEBERMAN
CHAPTER 4 / WORK WITH SUPPLY AND DEMAND
© 2001 South-Western
150,000
Examinations
per Year
18