Post on 18-Jan-2015
description
MicroeconomicsChapter 5
Elasticity
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Quantity
Movement along the Demand Curve
Price changes
demand curve does not change
quantity demandedchanges
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Shift in the Demand Curve
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Shift in the Demand Curve
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Shift in the Demand Curve
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Shift in the Demand Curve
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Shift in the Demand Curve
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Shift in the Demand Curve
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Shift in the Demand Curve
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Shift in the Demand Curve
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Shift in the Demand Curve
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Shift in the Demand Curve
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Shift in the Demand Curve
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Shift in the Demand Curve
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Shift in the Demand Curve
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Shift in the Demand Curve
0
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0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Shift in the Demand CurvePrice does not
change
demand curve shifts
quantity demandedchanges
Movement or Shift?
Variable Change Movement Shift
Price
Income
Related Goods
Tastes
Population and Demographics
Expectations
elasticityprice elasticity of demandtotal revenuetotal expenditureincome elasticity of demandcross-price elasticity of demandprice elasticity of supply
Key Terms
ELASTICITY EQUATION BENCHMARK
Price Elasticity of Demand
Cross-PriceElasticity
IncomeElasticity
Price Elasticityof Supply
MidpointFormula
Inelastic | Elastic 1
Compliments | Substitutes 0
Inferior | Normal | Luxury 0 1
Inelastic | Elastic 1
%∆QD%∆P
%∆QS%∆P
%∆QD1
%∆P2
%∆QD%∆I
∆Q∆PQPx
Elasticity
Elasticity
If I change one thing does another thing also change?
Elasticity
ElasticityA measure of how muchone economic variable
respondsto changes in
another economic variable
Percentage Change
%
Percentage Change
%
New - OldOld
Percentage Change
%
New - OldOld
Ignore units in the scale
Scales can be deceptive
$0
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Gasoline
Price
$0
$10.00
$20.00
$30.00
$40.00
$50.00
$60.00
$70.00
$80.00
$90.00
$100.00
3 4.5 6
Gallons - Gasoline
Price
Demand Schedule
Demand Schedule
Price Quantity Total Revenue
90 1 90
80 2 160
70 3 210
60 4 240
50 5 250
40 6 240
30 7 210
20 8 160
10 9 90
Demand Schedule
Price Quantity Total Revenue
90 1 90
80 2 160
70 3 210
60 4 240
50 5 250
40 6 240
30 7 210
20 8 160
10 9 90
Demand Schedule
Price Quantity Total Revenue
90 1 90
80 2 160
70 3 210
60 4 240
50 5 250
40 6 240
30 7 210
20 8 160
10 9 90
Demand Schedule
Price Quantity Total Revenue
90 1 90
80 2 160
70 3 210
60 4 240
50 5 250
40 6 240
30 7 210
20 8 160
10 9 90
Demand Schedule
Total RevenueCurve
Price Quantity Total Revenue
90 1 90
80 2 160
70 3 210
60 4 240
50 5 250
40 6 240
30 7 210
20 8 160
10 9 90
Demand Schedule
Total RevenueCurve
TotalRevenue
Price Quantity Total Revenue
90 1 90
80 2 160
70 3 210
60 4 240
50 5 250
40 6 240
30 7 210
20 8 160
10 9 90
Demand Schedule
Total RevenueCurve
TotalRevenue
Price Per Pizza
Price Quantity Total Revenue
90 1 90
80 2 160
70 3 210
60 4 240
50 5 250
40 6 240
30 7 210
20 8 160
10 9 90
Demand Schedule
Total RevenueCurve
10 20 30 40 50 60 70 80 900
60
120
180
240
300TotalRevenue
Price Per Pizza
Price Quantity Total Revenue
90 1 90
80 2 160
70 3 210
60 4 240
50 5 250
40 6 240
30 7 210
20 8 160
10 9 90
Demand Schedule
Total RevenueCurve
10 20 30 40 50 60 70 80 900
60
120
180
240
300TotalRevenue
Price Per Pizza
Price Quantity Total Revenue
90 1 90
80 2 160
70 3 210
60 4 240
50 5 250
40 6 240
30 7 210
20 8 160
10 9 90
Demand Schedule
Total RevenueCurve
10 20 30 40 50 60 70 80 900
60
120
180
240
300TotalRevenue
Price Per Pizza
Price Quantity Total Revenue
90 1 90
80 2 160
70 3 210
60 4 240
50 5 250
40 6 240
30 7 210
20 8 160
10 9 90
Demand Schedule
Total RevenueCurve
10 20 30 40 50 60 70 80 900
60
120
180
240
300TotalRevenue
Price Per Pizza
Price Quantity Total Revenue
90 1 90
80 2 160
70 3 210
60 4 240
50 5 250
40 6 240
30 7 210
20 8 160
10 9 90
Demand Schedule
Total RevenueCurve
10 20 30 40 50 60 70 80 900
60
120
180
240
300TotalRevenue
Price Per Pizza
Price Quantity Total Revenue
90 1 90
80 2 160
70 3 210
60 4 240
50 5 250
40 6 240
30 7 210
20 8 160
10 9 90
Demand Schedule
Total RevenueCurve
10 20 30 40 50 60 70 80 900
60
120
180
240
300TotalRevenue
Price Per Pizza
Price Quantity Total Revenue
90 1 90
80 2 160
70 3 210
60 4 240
50 5 250
40 6 240
30 7 210
20 8 160
10 9 90
Demand Schedule
Total RevenueCurve
10 20 30 40 50 60 70 80 900
60
120
180
240
300TotalRevenue
Price Per Pizza
Price Quantity Total Revenue
90 1 90
80 2 160
70 3 210
60 4 240
50 5 250
40 6 240
30 7 210
20 8 160
10 9 90
Demand Schedule
Total RevenueCurve
10 20 30 40 50 60 70 80 900
60
120
180
240
300TotalRevenue
Price Per Pizza
Price Quantity Total Revenue
90 1 90
80 2 160
70 3 210
60 4 240
50 5 250
40 6 240
30 7 210
20 8 160
10 9 90
Demand Schedule
Total RevenueCurve
10 20 30 40 50 60 70 80 900
60
120
180
240
300TotalRevenue
Price Per Pizza
Price Quantity Total Revenue
90 1 90
80 2 160
70 3 210
60 4 240
50 5 250
40 6 240
30 7 210
20 8 160
10 9 90
Demand Schedule
Total RevenueCurve
10 20 30 40 50 60 70 80 900
60
120
180
240
300TotalRevenue
Price Per Pizza
Price Elasticity of Demand
Price Elasticity of Demand
Price Elasticity of Demand
%%
Price Elasticity of Demand
%%
QD
Price Elasticity of Demand
%%
QD
P
Price Elasticity of Demand
%%
QD
P
Percentage Change in Quantity Demanded
Percentage Change in Price
Price Elasticity of Demand
1
ElasticInelastic
<1 >1
1. Calculate Elasticity2. Take Absolute Value3. Compare to benchmark of 1
$0
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Gasoline
Price
$0
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Gasoline
Price
$0
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Gasoline
Price
$0
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Gasoline
Price
$0
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Gasoline
Price
$0
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Gasoline
Price
%QD %P
$0
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Gasoline
Price
%QD %P
(4-5)÷5
(6-3)÷3
$0
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Gasoline
Price
%QD %P
(4-5)÷5
(6-3)÷3
-.21
$0
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Gasoline
Price
%QD %P
(4-5)÷5
(6-3)÷3
-.21
.2
$0
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream
Price
Price Increase
$0
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream
Price
Price Increase
$0
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream
Price
Price Increase
$0
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream
Price
Price Increase
$0
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream
Price
Price Increase
$0
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream
Price
Price Increase
$0
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream
Price
%QD %P
Price Increase
$0
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream
Price
%QD %P
(3-5)÷5
(4-3)÷3
Price Increase
$0
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream
Price
%QD %P
(3-5)÷5
(4-3)÷3
-.4.33
Price Increase
$0
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream
Price
%QD %P
(3-5)÷5
(4-3)÷3
-.4.33
1.2
Price Increase
$0
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream
Price
Price Decrease
$0
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream
Price
Price Decrease
$0
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream
Price
Price Decrease
$0
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream
Price
Price Decrease
$0
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream
Price
Price Decrease
$0
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream
Price
Price Decrease
$0
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream
Price
%QD %P
Price Decrease
$0
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream
Price
%QD %P
(5-3)÷3
(3-4)÷4
Price Decrease
$0
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream
Price
%QD %P
(5-3)÷3
(3-4)÷4
.66-.25
Price Decrease
$0
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream
Price
%QD %P
(5-3)÷3
(3-4)÷4
.66-.25
2.67
Price Decrease
MidpointFormula
Midpoint Formula
Q
QPP
Midpoint Formula
Delta Qover
Q Bar
Q
QPP
Midpoint Formula
Delta Qover
Q Bar
Delta Pover P Bar
Q
QPP
Midpoint Formula
Q
QPP
Midpoint Formula
Q
QPP
Trick: Flip denominator and multiply
Midpoint Formula
Q
QP
P
Trick: Flip denominator and multiply
Midpoint Formula
Q
Q PP
Trick: Flip denominator and multiply
X =
$0
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream
Price
Midpoint Formula
$0
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream
Price
Midpoint Formula
$0
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream
Price
Midpoint Formula
$0
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream
Price
Midpoint Formula
$0
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream
Price
Midpoint Formula
$0
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream
Price
Midpoint Formula
$0
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream
Price
Midpoint Formula
Q Q P
P x
$0
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream
Price
Midpoint Formula
Q Q P
P x
24 1
3.5x
$0
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream
Price
7
4
Midpoint Formula
Q Q P
P x
24 1
3.5x
$0
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream
Price
7
4
1.75
Midpoint Formula
Q Q P
P x
24 1
3.5x
What determinesPrice Elasticity of
Demand?
Close Substitutes
Passage of Time
Luxuries vs. Necessities
Definition of Market
Share of Budget
Close Substitutes
Close Substitutes
Close Substitutes
Elastic >1
Close Substitutes
Elastic >1
Close Substitutes
Elastic >1
Inelastic <1
Passage of Time
Passage of Time
More TimeMore Elastic
Luxuries vs. Necessities
Luxuries vs. Necessities
Elastic
Luxuries vs. Necessities
Elastic Inelastic
Definition of Market
Definition of Market
Elastic
Definition of Market
Elastic Inelastic
Definition of Market
Elastic Inelastic
Demand for Gasoline in General
Definition of Market
Elastic Inelastic
Demand for Gasoline in General
Demand for Gasoline in Rexburg
Share of the BudgetSmall Large
Share of the Budget
Inelastic
Small Large
Share of the Budget
ElasticInelastic
Small Large
Price Elasticity and
Total Revenue
$0
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Gasoline
Price
Total RevenueTR = P x Q
$0
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Gasoline
Price
Total RevenueTR = P x Q
$0
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Gasoline
Price
Total RevenueTR = P x Q
$0
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Gasoline
Price
$3.00 x 5 = $15
Total RevenueTR = P x Q
$0
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Gasoline
Price$6.00 x 4 = $24
$3.00 x 5 = $15
Total RevenueTR = P x Q
$0
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Gasoline
Price$6.00 x 4 = $24
$3.00 x 5 = $15
Lose
Total RevenueTR = P x Q
$0
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Gasoline
Price$6.00 x 4 = $24
$3.00 x 5 = $15
Lose
Gain
Total RevenueTR = P x Q
$0
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Gasoline
Price$6.00 x 4 = $24
$3.00 x 5 = $15
Net Gain = $9
Lose
Gain
Total RevenueTR = P x Q
$0
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Gasoline
Price$6.00 x 4 = $24
$3.00 x 5 = $15
Inelastic (<1)Raising prices will increase total revenue
Net Gain = $9
Lose
Gain
Total RevenueTR = P x Q
$0
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream
Price
Total RevenueTR = P x Q
$0
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream
Price
Total RevenueTR = P x Q
$0
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream
Price
Total RevenueTR = P x Q
$0
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream
Price
$3.00 x 5 = $15
Total RevenueTR = P x Q
$0
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream
Price$4.00 x 3 = $12
$3.00 x 5 = $15
Total RevenueTR = P x Q
$0
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream
Price$4.00 x 3 = $12
$3.00 x 5 = $15
Lose
Total RevenueTR = P x Q
$0
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream
Price$4.00 x 3 = $12
$3.00 x 5 = $15
Lose
Gain
Total RevenueTR = P x Q
$0
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream
Price$4.00 x 3 = $12
$3.00 x 5 = $15
Net Gain = -$3
Lose
Gain
Total RevenueTR = P x Q
$0
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
1 2 3 4 5 6 7 8 9 10
Gallons - Ice Cream
Price$4.00 x 3 = $12
$3.00 x 5 = $15
Elastic (>1)Raising prices will decrease total revenue
Net Gain = -$3
Lose
Gain
Total RevenueTR = P x Q
Cross-Price Elasticity of Demand
Cross-Price Elasticity of Demand
%%
QD
P
Cross-Price Elasticity of Demand
%%
QD
P1
Cross-Price Elasticity of Demand
%%
QD
P1
2
Cross-Price Elasticity of Demand
Percentage Change in Quantity Demanded of one good
Percentage Change in Priceof another good
%%
QD
P1
2
Cross-Price Elasticity of Demand
0
SubstitutesCompliments
<0 >0
1. Calculate Elasticity2. Compare to benchmark of 0
%%
QD1
P2
%%
QD1
P2 50%
%%
QD1
P2
35%
50%
%%
QD1
P2
35%
50%=.7
%%
QD1
P2
35%
50%=.7 >0
%%
QD1
P2
35%
50%=.7 >0
Substitutes
%%
QD1
P2
%%
QD1
P2 50%
%%
QD1
P2
-40%
50%
%%
QD1
P2
-40%
50%=-.8
%%
QD1
P2
-40%
50%=-.8 <0
%%
QD1
P2
-40%
50%=-.8 <0
Compliments
Cross-Price Elasticity of Demand
0
SubstitutesCompliments
<0 >0
%%
QD
P1
2
IncomeElasticity of Demand
Normal, Inferior, or Luxury?
Percentage Change in Quantity Demanded
Percentage Change in Income
IncomeElasticity of Demand
%%
QD
I
IncomeElasticity of Demand
0
LuxuryInferior
<0 >1
1. Calculate Elasticity2. Compare to benchmark of 0 and 1
1
Normal
%%
QD
I
%%
QD
I 20%
%%
QD
I
10%
20%
%%
QD
I
10%
20%=.5
%%
QD
I
10%
20%=.5
>0<1
%%
QD
I
10%
20%=.5
>0<1
Normal
%%
QD
I
%%
QD
I 20%
%%
QD
I
-50%
20%
%%
QD
I
-50%
20%=-2.5
%%
QD
I
-50%
20%=-2.5 <0
%%
QD
I
-50%
20%=-2.5 <0
Inferior
%%
QD
I
%%
QD
I 20%
%%
QD
I
100%
20%
%%
QD
I
100%
20%= 5
%%
QD
I
100%
20%= 5 >1
%%
QD
I
100%
20%= 5 >1
Luxury
IncomeElasticity of Demand
0
LuxuryInferior
<0 >11
Normal
%%
QD
I
Price Elasticity of Supply
Price Elasticity of Supply
%%
Price Elasticity of Supply
%%
QS
Price Elasticity of Supply
%%
QS
P
Price Elasticity of Supply
%%
QS
P
Percentage Change in Quantity Supplied
Percentage Change in Price
Price Elasticity of Supply
1
ElasticInelastic
<1 >1
1. Calculate Elasticity2. Compare to benchmark of 1
%%
QS
P
%%
QS
P 20%
%%
QS
P
10%
20%
%%
QS
P
10%
20%=.5
%%
QS
P
10%
20%=.5 <1
%%
QS
P
10%
20%=.5 <1
Inelastic
%%
QS
P
%%
QS
P 20%
%%
QS
P
40%
20%
%%
QS
P
40%
20%= 2
%%
QS
P
40%
20%= 2 >1
%%
QS
P
40%
20%= 2 >1
Elastic
Price Elasticity of Supply
1
ElasticInelastic
<1 >1
%%
QS
P
1. Prices increase from $5.00 to $6.00. Quantity demanded decreases from 100 units to 80 units.
What is the price elasticity of demand?Midpoint Formula
What is the total revenue at $5.00 per unit?
$5 x 100 = $500
What is the total revenue at $6.00 per unit?
$6 x 80 = $480
∆Q∆PQPx 20
1905.50x 1.22110
90= = =