19 Demand and Supply Elasticity

If the price of satellite decreases by a certain amount, the demand for cable TV will decrease by a certain amount.

The cross price elasticity of a percentage decrease in the demand for satellite demand and how it may be used to TV that is less than half as large is caused by a given percentage price elasticity of demand decline in the price of cable TV.
One of the elasticity concepts you will encounter in this chapter is the cross price elasticity of demand.

A small increase in the price of debit-card usage causes a reduction in the amount of transactions demanded by users.

How responsive consumers will be to changes in prices is the only way to answer these questions.

The price elasticity of demand is something we are concerned about.

We want to know the extent to which a change in the price of a product will cause a change in the quantity demanded.
We want to know the percentage change in quantity demanded after a percentage change in price.

The percentage change in quantity demanded divided by the percentage change in quantity demanded in price is the responsiveness of the quantity demanded.

A 10 percent increase in the price of oil will result in a reduction in quantity demanded by only 1 percent.

If you were told that the price elasticity of demand for oil was -1, you would know that a 10 percent increase in the price of oil would cause a 10 percent decrease in the quantity demanded.

Percentage changes are independent of the units chosen, so we focus on relative amounts of price changes.

It doesn't matter if we measure price for additional review of the price elasticity of changes in terms of cents, dollars, or hundreds of dollars.
Demand doesn't matter.

The price elasticity of demand will always be negative.

A large change in price has little effect on quantity demanded.

Percentage changes in quantity demanded and in price are used to calculate the price elasticity of demand.

When we calculate percentage changes in this way, there is a problem.

The percentage change from 2 to 3--50 percent is not the same as the percentage change from 3 to 2--33 1 percent.

The only way out of this dilemma is to use average values.

There was a 0.09 percent increase in the quantity of natural gas demanded.

The quantity of natural gas demanded by the United States increased from 62.21 billion cubic feet per day to 62.64 bil not very responsive to a decrease in the price.

Depending on whether a 1 percent change in price elicits more or less than a 1 percent change in quantity demanded, we have names for the varying ranges of price elasticities.

A 1 percent change in price will result in a 1 percent change in quantity demanded.

The quantity of less than 1 percent is a demand relationship.

A demand relationship in which a given demand is inelastic, we are indicating that consumers are unresponsive when it comes to price changes.

The quantity was demanded.

The question is how much.

That is what elasticity tries to determine.

There are two different prices for demand.

The change in the quantity demanded will be zero if the demand has a characteristic.

Even a small increase in price will lead to mula for computing elasticity.
The zero quantity is the change in the quantity demanded.

At any point in the demand curve, this is true.

There is perfect inelasticity.

In panel a, we show complete price unresponsiveness.

The demand curve is vertical Panel at the quantity of 8 million units per year.

The price elasticity of demand is zero.

We show complete price responsiveness in panel b.

We show that at a price of 30 cents, an unlimited quantity will be demanded.

No quantity will be demanded at a price of 30 cents.
The demand schedule in panel (b) is elastic because there is perfect responsiveness at each point along the curve.

The answers can be found on page 434.

We change in __________ __________ divided by the percent and ignore the negative sign in discussions of the price age change.

Extreme elasticity occurs when a demand curve changes in quantity demanded and price.

It has elasticity of demand.

It is expressed as a unitless, dimensionless number.
Another extreme elasticity is found in units of measurement.

It has a complete demand.

The price elasticity of demand is always the same.

The price per unit is thought to be the way for total receipts to rise.

The answer depends on the elasticity of demand.

The price of cellular phone service is shown in cents per minute in column 1 and billions of minutes in column 2.

The total revenue is always equal to the number of units sold times the price per unit in column 3.
Values of elasticity are calculated in column 4.
Take notice of the total revenues throughout the schedule.
The price goes from 1 cent to 5 cents per minute.
When the price goes up to 6 cents per minute, total revenues remain constant at $3 billion.

The total revenue curve is shown in panel (c).

Total revenues fall as price increases.

The data in column 3 is represented in a total revenue curve.

According to this demand schedule, no units will be purchased, and therefore total revenue will be zero, since the demand curve is at a maximum height.
As price is lowered, we travel down the demand curve, and total revenues increase until price is 6 cents per minute, remain constant from 6 cents to 5 cents per minute, and then fall at lower unit prices.
Demand is elastic, unit-elastic, and inelastic.
There are three relationships between price elasticity and total revenues.

There is a negative relationship between price and total revenues.

If the market price decreases, total revenues will rise.
If the market price goes up, total revenues will go down.

Total revenues are unaffected by price changes.

If the market price increases, total revenues will not change, and if the market price decreases, total revenues will not change.

There is a positive relationship between prices and revenues.

When the market price increases, total revenues will go up.
Total revenues will fall when the market price goes down.

For prices from 11 cents per minute to 6 cents per minute, total revenues rise from zero to $3 billion.

Demand can be elastic.
Total revenues remain constant when the price goes from 6 cents to 5 cents.
Unit-elastic demand is what it is.

When the price goes from 5 cents to 1 cent, total revenues go from $3 billion to $1 billion.

Demand is elastic.

Some important micro economic concepts are brought together by the relationship between price elasticity of demand and total revenues.

The product of price per unit times number of units purchased is the total revenues.

To consider how the price elasticity of demand for Internet-ready gad which of the opposing changes exerts a greater force on total revenues.

This influences the prices at which what price elasticity of demand is designed to measure--responsiveness of quantity companies offer them for sale, read demanded to a change in price.

The answers can be found on page 434.

The price elasticity of demand is related to the total.

The price elasticity of demand can be calculated.

We know that it can range from completely inelastic to completely elastic.
We want to come up with a list of the factors that affect the elasticity of demand.

The greater the price elasticity of demand, the closer the substitute for a particular commodity is.

If there is a perfect substitute, the elasticity of demand for the commodity will be zero.
The quantity demanded will fall to zero if the price of the commodity increases.

In this extreme example, we are talking about two goods that the consumer believes are exactly alike and equally desirable, like dollar bills whose only difference is their serial numbers.

We can only speak about the number and similarity of the substitute when we talk about less extreme examples.

The closer we define a good, the greater the number of substitute options.

The demand for diet soft drinks may be elastic because consumers can switch to other liquid refreshments.
The demand for diet drinks is less elastic because there are fewer alternatives.

The elasticity of demand for a commodity is determined by the share of a person's total budget spent on it.

The demand for pepper iselastic because people spend less on it than their budgets.
In contrast, the demand for items such as transportation and housing is much more elastic because they occupy a large part of people's budgets.

Consider an example.

A household spends a lot of money.
Consider the spending power of this family when the price of pepper and transportation double.
The household will spend $8 if it buys the same amount of pepper.
Reducing other expenditures by $4 is what it will have to do.
Only a small portion of the entire household budget is represented by this $4.
If transportation costs double, the family will have to spend $8,000 or $4,000 more to purchase the same quantity.
10 percent of total expenditures must be switched from other purchases because of the increased expenditure on transportation of $4,000.
If transportation prices double, the household will react differently than if pepper prices double.
It will reduce its transportation purchases by a larger amount.

When the price of a commodity changes, more people will learn about it.

Consumers will be better able to revise their consumption patterns if they have more time to do it.
The longer they take, the less expensive it will be for them to change their consumption patterns.
Take a look at a price decrease.
The number of new uses that consumers will discover for a particular commodity will be more important than the number of new users of that particular commodity.

The greater the elasticity of demand, the better.

In the long run, demand is more elastic than in the short run.

Let's look at an example.

The price of electricity could go up 50 percent.
You can change the lights off more often, you can stop using your computer more often, and similar measures.
It's difficult to cut back on electricity use.

You can come up with other ways to reduce your consump tion.

Next time you build a house, you will be able to install solar panels.
fluorescent bulbs use less electricity.
The more time you have to think about it, the more ways you can cut your electricity use.

We can think of an entire family of demand curves.

When there is little time for adjustment, the short-run demand curve is used.
Slope alone does not measure elasticity for the entire curve, so it is greater for the less steep curves.

Certain products, such as baby food, do not raise the prices of their competitors.

If you are a baby food manufacturer, your competitors will pick off your customers.

If you don't have competitors, you can't raise your price because the demand for baby food iselastic.

If you increase the price of your product.

In Table 19-2 we show demand elasticities for goods.

None of them are zero, and the largest is 4.5.

The inverse relationship between the short run and elasticity of demand is 1.1, even though the estimate is omitting the negative sign.
You can see the estimates of long price and quantity in the table.
These elasticities are run price elasticities of demand.

We don't include the minus sign, but all of them are negative.

The short run and long run have been mentioned.

There is no single answer.
The period of time necessary for consumers to make a full adjustment to a price change is called the long run.
It will take consumers a long time to switch over to cheaper sources of heating, to buy houses and appliances that are more energy efficient, and so on, in the case of the demand for electricity.

The long-run elasticity of demand for electricity is related to several years.

The short run is any period less than the long run.

The effect of a change in price on demand for a related good was discussed in Chapter 3.

We looked at whether a reduction in the price of one caused a decrease or increase in demand for the other.
The number of discs purchased will be influenced by the price of a close substitute such as Internet digital movie downloads if the price of the discs is held constant.
Changes in the price of computers will affect the amount of computer printers demanded.

We need to come up with a numerical measure of the responsiveness of the amount of an item demanded to the prices of related goods.

The percentage change in the amount of demand curve is divided by the percentage change in the price of the related good.

The cross price elasticity of demand between good X and good Y is determined by the percentage change in the price of a related good.

The percentage change in the price of good Y would be used as the numerator and the percentage change in the price of good X would be used as the denominator.

The cross price elasticity of demand will be positive when two goods are replaced.

When the price of portable hard drives goes up, the amount of flash memory drives demanded at their current price will rise--the demand curve for flash drives will shift horizontally rightward--in response as consumers shift away from the now relatively more expensive portable hard drives to flash memory.

A producer of flash memory drives could benefit from a numerical estimate of the elasticity of demand between portable hard drives and flash memory drives.
If the price of portable hard drives goes up by 10 percent and the producer of flash memory drives knows that the cross price elasticity of demand is 1, the flash drive producer can estimate that the amount of flash memory drives demanded will also go up by 10 percent at any given price of flash.
Plans for increasing production of flash memory drives can be made.

The amount of computer printers demanded will go up when the price of personal computers goes down.

As prices of computers decrease, the number of printers purchased at Part 5 #DIMENSIONS OF MICROECONOMICS will increase, because computers and printers are often used together.

This must be taken into account when making production plans for computer printers.

The cross price elasticity of demand will be zero if goods are unrelated.

In Chapter 3, we talked about the determinants of demand.

Income was one of the factors.
Our understanding of elasticity can be applied to the relationship between income and demand for a good.

The percentage change in income is the responsiveness of the amount of a good demanded to a change in income.

Income elasticity of demand is calculated at a given price and price elasticity of demand is calculated at a given income.

To get the same income elasticity of demand over the same range of values regardless of the direction of change, we can use the same formula that we used in computing the price elasticity of demand.

An example will show how income elasticity of demand can be computed.

The table gives the data.
There is a product in question.
The price of discs is assumed to be constant relative to other prices.
In the first month, six discs are purchased.
A month's income is $4,000.
Monthly income increases to $6,000 and the number of discs demanded increases to eight.

The figure of 0.7l is the elasticity of demand for the individual in this example.

The amount of dental services demanded varies with income.

You've been introduced to three types of elasticities.

The consumption of most goods is influenced by the three elasticities.
Accurate estimates of these elasticities can be used to make accurate forecasts of demand for goods or services.

The answers can be found on page 434.

The elasticity of demand is one of the factors that determines price elasticity of demand.

It is for complement, existence, number, and quality.

Price elasticity of demand is a measure of responsiveness to price changes.

The supply elasticities are positive.

Suppliers will usually be forthcoming with the quantity supplied larger.

The elasticity of supply is defined as the percentage change in quantity supplied divided by the percentage change in price.

There are different ranges of supply elasticities.

They are the same as the ranges of demand elasticities.

No matter what happens to price, the percentage change in the quantity supplied is the same as the percentage constant.

The boats come in and the curve is perfect for fresh fish.

Even if you don't read the labels, you can see which one is elastic and which one is inelastic.

Most supply schedules have elasticities that are between zero and infinite.

The longer the time period allowed for adjustment, the greater the price elasticity of demand.

The same proposition applies to supply.

The longer the time allowed for adjustment, the more resources can flow into or out of an industry.

An example would be if there was a significant increase in the demand for gasoline.
There is a rise in the market price of gasoline.
With the operating refining equipment available to them, it will be hard for them to expand their production.
Some refining companies might be able to recondition equipment that has fallen into disrepair.
Once the equipment arrives, they can put it into place to expand their gasoline production.
Adding new refining operations can eventually respond to higher gasoline prices.

Entry or exit of firms increases or decreases production in an industry if the time allowed for adjustment is longer.

If the price of gasoline stays higher than before, what will happen?
Adding new refining facilities, retooling old equipment, purchasing new equipment, and buying new equipment may add to existing refining facilities' capability to produce gasoline at higher gasoline prices.
The quantity of gasoline supplied increases as new refining companies enter the market.

Short-run and long-run price elasticities of supply are discussed.

The time period during which full adjustment has not yet taken place is known as the short run.

Firms have been able to adjust fully to the change in price during the long run.

A 1 percent rise in the price of salmon causes a price elasticity of Salmon Supply in Norway.

The increase in quantity supplied was estimated to be 28 times greater.

We can show a lot of the same supply curves.

The answers can be found on page 434.

Higher prices yield more quantities supplied.

Steve Jobs has just made his first big Thus, although most industry observers anticipated that a pitch for Apple's latest high-tech gadget, the iPad, which can per basic iPad would be priced at $1,000, Apple.

The company has set a lower price in order to play animated figures from college textbooks.
According to media reports, industry observers think that the company will lower the price of the product in order to make more money.

Austan Goolsbee of the N Price Elasticity of Demand University of Chicago and Amil Petrin of the University of Minnesota are trying to find out.

The price elasticity of demand was estimated by Goolsbee and Petrin.

The elasticity of demand for cable TV and satellite TV was found to be positive by the researchers, with an average elasticity of demand of between 1.5 and 3.0 for cable TV and 2.5 for satellite TV.
The demands to be substitute were found by the researchers.

The cross price elasticities were different.

Satellite TV services can now be demanded to decline by 1 percent.

The amount of satellite TV services demanded fell when they accessed using personal computers.

Satellite TV services have already developed ways that are different from cable TV services.

What would happen to the revenues versus satellite TV if the market clearing prices of cable and satellite TV were to decrease?

Section N: News is where you can find information about why cable and satellite services are viewed as imperfectly substitutable.

You should know what to know after reading this chapter.

Chapter 19 demanded a percentage change in price.

To calculate the price elasticity of demand for relatively small changes in price, the percentage change in quantity demanded is equal to the change in quantity resulting from a price change divided by the average of the initial and final quantities, and the percentage change in price is equal to the price change divided by the

When the price is perfectly elastic and the demand is less than 1, the demand curve is inelastic.

When the price elasticity of demand is 1 and over the range of a demand curve, an increase in price does not affect total revenues.

The price elasticity of demand increases if there is more close the Price Elasticity of Demand substitute.

When a larger portion of a person's budget is spent on the good, the price elasticity of demand increases.

The price elasticity of demand tends to be higher if people have a longer period of time to adjust to a price change.

The percentage change in the amount of good demanded divided by the percentage change in the price of a related good is called demand price elasticity.

The cross price elasticity of demand is positive if there is an increase in the price of one of the goods.
The cross price elasticity of demand is negative if there is an increase in the price of one of the goods.

The good's relative price is not affected by the percentage change in income.

If the price elasticity of supply is greater than 1, it is elastic, and if it is less than 1, it is inelastic.

If the price elasticity of supply is 1 then supply is unit-elastic.
When sellers have more time to adjust to price changes, supply is likely to be elastic.

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Consumers buy 150 per week when the price of shirts with a col Internet access providers logo increases.

The elasticity of demand for logo courses is calculated by taking the price of 18 holes on local golf and dividing it by 1,200.

The table shows that the number of consumers will decline to 800.

What is the elasticity of demand for tires?

It's hard to find goods with elasticity from $50 to $60 if you're looking for it.

The demand curve for the following goods is shown in the diagram below as being close to "miniburgers" in a local fast-food market.

A small farmer grows and harvests corn.

The annual revenues decline when the price falls to $700.

The range of the demand curve is based on the price of the goods and how elastic or inelastic they are.

The price elasticity of the supply of a basic commodity is 2.0.

If the price of eggs and bacon is -0.5, then the elasticity of demand to the volume of imports would be zero.

In the short run, the income elasticity of demand should be 10 percent.

The income elasticity of things being equal, the 20 percent price increase demand for lobster, and the fact that other hot dogs is -1.25 are all indicators of the long run.
The increase in production is 40 percent.

At a price of $25,000, producers of midsized auto cause a local barbershop to have its employees work mobiles to increase the number of daily haircuts cars per month.

They are provided from 35 to 45.
The market price is willing to produce and sell 125,000 a month.

Is it unit day or supply elastic?

The price elasticity of demand is a key factor in determining the use of illegal drugs, and if you make the use of certain drugs illegal, the price elasticity of demand will go up.

Why do you think the price elasticity of demand affects drug consumption?

The price study of price elasticities of participation in use of illegal drugs may be used by officials to develop drugs.