Elasticity
-
Upload
alaleh-mani -
Category
Documents
-
view
95 -
download
1
Transcript of Elasticity
ElasticityMicroeconomic FoundationAlaleh Mani2011
Points in Calculation Use only average due to its accuracy ای فاصله ،کشش نداریم ای نقطه کشش نداریم تقاضا منحنی اساس بر کشش نداریم هندسی کشش روش به محاسبه ∆Q/Qave = a proportionate of quantity demand (∆Q/Qave ) * 100 = Percentage [(∆Q/Qave ) * 100]/ [(∆P/Pave )*100 ]= units-free %∆Q / %∆P= elasticity Professor's Note: It is customary to use average values when
calculating percentage changes used in elasticity computations. This way a change from 8 to 10 and a change from 10 to 8 both result in the same percentage change of 2/9 = 22.2%. Use this method in the exam!
continue Elasticity is a responsiveness of demand to
price change=absolute value or its magnitude
Insulin =Perfectly Inelastic Food and housing= inelastic Automobile and furniture Two soft drinks with perfect substitution
=Perfectly elastic Transportation ,housing, energy elasticity
Total Revenue and Elasticity P cut, TR rise elastic demand , Q
rise>1% P cut, TR fall inelastic demand, Q
rise<1% P cut, TR fix elasticity=1 , Q rise=1%
Demand Curve and Total Revenue
The factors that influence on elasticity of Demand 1.degree of substitution -oil has none, oil is inelastic and In need -Personal computer inelastic -Dell or HP are Elastic -Vacation is Luxury have many substitution
one of them is “not buying them” so an Elastic 2.Income proportion- budget Gum is inelastic Housing is elastic
Food budget in 10 countries and elasticity
3.Time elapsed since Price changes Oil price rise, oil is
inelastic ,technology helps to less consume the oil, demand fall
PC price fall, inelastic, advertisement and knowledge , demand rise
4. Price
Cross Elasticity
%∆Q1 / %∆P2= elasticity 1 Far Close
(-) Substitution Small Large
Two items Complement Small Large
Unrelated Small CE≈0
Income Elasticity of Demand %∆Q / %∆I= income elasticity E=∞ E>1 Normal Good, Elastic 0<E<1 Normal Good, Inelastic E=0 E<0 Inferior Good and low income
consumers…potatoes, rice, motorcycle
Table 2
Income elasticity of food in 10 countries Necessity ------- food Luxury -----------Air line in Arica food is luxury
There is no standard graph for income/quantity relation
Supple Price Elasticity Van Gogh Painting EOS=0 Wheat, Beef, Sugar Linear supply curve passes the origin,
has E=1
The factors which influence the elasticity of supply Resource substitution the opportunity cost is constant wheat can be planted anywhere Van Gogh is unique Time Momentary Supply Fruit and plants E=0 , new decision takes time Long distance telephone E=∞, quick decision Long run Supply response to change of price in firms after all possible
changes Short run Supply respond to change with very first adjustment ,labor 0<E<1