mikroekonomi bab 4.ppt

8/11/2019 Mikroekonomi Bab 4.ppt

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Elasticity

4

McGraw-Hill/Irwin Copyr ight 2012 by The McGraw -Hil l Comp anies, Inc. All r ights reserv ed.


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Price Elasticity of Demand

Measures buyers responsiveness toprice changes Elastic demand

Sensitive to price changes Large change in quantity

Inelastic demand Insensitive to price changes Small change in quantity

LO1


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Price Elasticity of Demand Formula

Formula for price elasticity of demand

Ed =

LO1

Percentage Change in QuantityDemanded of Product X

Percentage Change in Priceof Product X


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Use the midpoint formula Ensures consistent results

Change in quantity Change in price

Sum of quantities / 2 Sum of prices / 2

LO1

Ed =


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Use percentages Unit free measure Compare responsiveness across

products

Eliminate the minus sign

Easier to compare elasticities

LO1


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Extreme Cases

LO1

D1P

Perfectly inelastic demand

Perfectly

inelastic

demand

(Ed = 0)

0


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Extreme Cases

LO1

Perfectly elastic demand

P

D2

Perfectly

elastic

demand

(Ed = )

0


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Total Revenue Test

Total Revenue = Price x Quantity Inelastic demand

P and TR move in the samedirection

Elastic demand

P and TR move in oppositedirections

LO2


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Summary of Price Elasticity of Demand

LO2

Price Elasticity of Demand: A Summary

Absolute Value

of Elasticity

Coefficient Demand Is Description

Impact on Total Revenue of a:

Price Increase Price Decrease

Greater than 1

(Ed > 1)

Elastic or

relatively

elastic

Qdchanges by a

larger

percentage thandoes price

Total revenue

decreases

Total revenue

increases

Equal to 1

(Ed= 1)

Unit or unitary

elastic

Qd changes by

the same

percentage as

does price

Total revenue

is unchanged

Total revenue

is unchanged

Less than 1

(Ed< 1)

Inelastic or

relatively

inelastic

Qdchanges by a

smaller

percentage than

does price

Total revenue

increases

Total revenue

decreases


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Determinants of Elasticity of Demand

Substitutability More substitutes, demand is more elastic

Proportion of Income

Higher proportion of income, demand ismore elastic

Luxuries vs. Necessities

Luxury goods, demand is more elastic Time

More time available, demand is more elasticLO1


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Price Elasticity of Supply

Measures sellers responsiveness toprice changes Elastic supply, producers are

responsive to price changes Inelastic supply, producers are not

responsive to price changes

LO3


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Price Elasticity of Supply

Formula to compute elasticity Es> 1 supply is elastic E

s< 1 supply is inelastic

LO3

Percentage Change in Quantity

Supplied of Product X

Percentage Change in Price

of Product X

Es =


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Cross Elasticity of Demand

Measures responsiveness of sales tochange in the price of another good

Substitutespositive sign Complementsnegative sign Independent goods - zero

LO4

Percentage change in quantity demanded of product X

Ex,y=

Percentage change in price of product Y


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Income Elasticity of Demand

Measures responsiveness of buyersto changes in income Normal goodspositive sign

Inferior goodsnegative sign

LO4

Percentage change

in quantity demanded

Ei=

Percentage change in income


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Ex,yand Ei

LO4

Cross and Income Elasticities of Demand

Value ofCoefficient Description Type of Good(s)

Cross elasticity:

Positive (Ewz > 0)

Negative (Exy< 0)

Quantity demanded of W changes in same

direction as change in price of Z

Quantity demanded of X changes in

opposite direction from change in price of Y

Substitutes

Complements

Income elasticity:

Positive (Ei>0)

Negative (Ei

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