QUESTION: HOW MUCH DOES THE QUANTITY DEMANDED CHANGE WHEN THE
PRICE OF THE GOOD/SERVICE CHANGES? If price falls by $1: Will Qd
increase proportionally the same, less, or more?
Slide 4
Ep = measures the responsiveness of quantity demanded of a good
or service to changes in price. E.g. If Metro raised the price of
their tickets will they get more revenue?
Slide 5
MIDPOINT FORMULA
Slide 6
THE ANSWER 1Infinity0 UnitaryElastic Inelastic
Slide 7
EXAMPLES MARKET DEMAND FOR PEACHES ARE AS FOLLOWS; $2/KG 400KG
ARE PURCHASED, $2.50/KG 300KG ARE PURCHASED, $3/KG - 290KG ARE
PURCHASED WORK OUT THE ELASTICITY OF DEMAND FOR PEACHES BETWEEN
$2.50 AND $3. SHOW YOUR WORKING 0.19
Slide 8
EXAMPLES When Joey Sword guy dropped the price of his swords by
20% Quantity purchased increased by 9%. Explain to Joey, using
relevant economic data, why this may have been a poor decision
0.45
Slide 9
EXAMPLES BOBBY BLUE EYES HAS BEGUN SELLING HIS NEW JANDELS.
FROM HIS MARKET RESEARCH HE HAS FOUND OUT THE FOLLOWING ABOUT HIS
PRODUCT! If he sells them for $20 he will sell 2001 units but if he
sells them for $15 he will sell 3700 units Advise him on the
elasticity of demand for his product and what he should do as a
result of this information 2.08
Slide 10
Why inelastic or elastic? No close substitutes Small percentage
of total expenditure Necessary Not easily postponed
Slide 11
Many close substitutes Large percentage of total expenditure
Luxury Easily postponed
Slide 12
CRITERIA L.I; TO LEARN ELASTICITY IN RELATION TO PRODUCTS L.O;
- CALCULATE CROSS ELASTICITY OF DEMAND UNDERSTAND THE USES OF CROSS
ELASTICITY OF DEMAND
Slide 13
CROSS ELASTICITY OF DEMAND Is beer a compliment for pizza? If
it is how strong is the relationship? Is beer a substitute for
wine? If it is how strong is the relationship?
Slide 14
CROSS ELASTICITY OF DEMAND The responsiveness of quantity
demanded of one good, to the change in price of another.
Slide 15
FORMULA Ecross = Q2 good a Q1 good aP2 good b P1 good b (Q1
good a + Q2 good a)(P1 good b + P2 good b) 2
Slide 16
WORKED QUESTION WE KNOW THAT THE ORIGINAL PRICE OF DIRTY UNDIES
IS $9 AND THE NEW PRICE OF DIRTY UNDIES IS $10. THE QUANTITY
DEMANDED OF Y-FRONTS WHEN THE PRICE OF DIRTY UNDIES IS $9 IS 150
AND WHEN THE PRICE IS $10 IS 190. YOU SHOULD HAVE THESE FOUR
FIGURES WRITTEN DOWN:
Slide 17
ANSWER 2.4 STRONG WEAK 12-20
Slide 18
CRITERIA L.I; TO LEARN ELASTICITY IN RELATION TO PRODUCTS L.O;
- CALCULATE INCOME ELASTICITY OF DEMAND UNDERSTAND THE USES OF
INCOME ELASTICITY OF DEMAND
Slide 19
INCOME ELASTICITY WHEN YOUR INCOME GOES UP WHAT ARE YOU LIKELY
TO BUY??????
Slide 20
INCOME ELASTICITY OF DEMAND MEASURES THE RESPONSIVENESS OF
QUANTITY DEMANDED TO CHANGES IN DISPOSABLE INCOME
Slide 21
REMINDER I got more disposable income. What should I
buy????
Slide 22
WHAT ARE THE 3 TYPES OF GOODS? NormalInferior
NecessityLuxuryInferior
Slide 23
I got more disposable income. What should I buy????
NecessityLuxuryInferior
Slide 24
FORMULA Ey = Q2 Q1 Y2 Y1 (Q1 + Q2)(Y1 + Y2) 2 2 Example Tori
gets an increase in pay from $150 to $200. Her demand for mince
pies increases from 3 to 5
Slide 25
1.75 Luxury Inferior Good Necessity 2 1-20 Normal
Slide 26
Slide 27
CRITERIA L.I; TO LEARN ELASTICITY IN RELATION TO SUPPLIERS OF
PRODUCTS L.O; - CALCULATE INCOME ELASTICITY OF DEMAND UNDERSTAND
THE USES OF INCOME ELASTICITY OF DEMAND
Slide 28
SUPPLY OVER TIME! ELASTICITY'S FOR SUPPLY CURVES WILL CHANGE
OVER TIME. THIS IS DUE TO THE AVAILABILITY OF PRODUCTS ON THE
MARKET AT CERTAIN TIMES!
Slide 29
THE CAKE TIN!!!! Imagine: Silverstream year 13 Economics class
have got the go ahead to organise 10 of the worlds best bands to
perform at the cake tin for 5 hours!
Slide 30
THE SUPPLY OF TICKETS THE EVENT IS TO BE HELD ON THE 22 ND OF
JUNE 2014
Slide 31
SHORT-RUN SUPPLY At least 1 input is fixed. The firm is
restricted in its ability to change output. The supply curve is
relatively inelastic. We are unable to change supply to a large
degree!
Slide 32
MOMENTARY SUPPLY THE EVENT IS TO BE HELD TONIGHT!
Slide 33
MOMENTARY SUPPLY Supply is fixed regardless of the price. This
is illustrated by a perfectly inelastic curve. Firms are unable to
change any inputs (factors)
Slide 34
THE SUPPLY OF TICKETS THE EVENT IS IN 10 YEARS TIME!!! What
would the supply hizzle look like if the snoop D.O. double G was
featuring at the rock dizzle manizzle????
Slide 35
LONG-RUN SUPPLY All inputs are variable, therefore the firm can
be more adaptable and more efficient. Supply is more elastic.