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CHAPTER 4:

Elasticity of Demand and Supply

TABLE AND FIGURES


Table 4.1 Calculation of Two Demand Elasticities

Original New % change Elasticity

Good A

Quantity 100 95 -5% -5/10 = - 0.5%

Price £1 £1.10 10%

Good B

Quantity 200 140 -30% -30/20 = - 1.5%

Price £5 £6 20%
Figure 4.3 Three Constant-elasticity Demand Curves

D0

Price

Quantity
Figure 4.3 Three Constant-elasticity Demand Curves

D0 D1

Price

Quantity
Figure 4.3 Three Constant-elasticity Demand Curves

D0 D1

Price

p0 D2

Quantity
Figure 4.4 Elasticity on a Linear Demand Curve

D
Price

0
Quantity
Figure 4.4 Elasticity on a Linear Demand Curve

D
Price

0 q
Quantity
Figure 4.4 Elasticity on a Linear Demand Curve

B
Price

∆p
A

∆q

0 q
Quantity
Figure 4.5 Two Intersecting Demand Curves
Price

Ds Df

0
Quantity
Figure 4.5 Two Intersecting Demand Curves

A
Price

p
∆p

Ds Df

0 q

Quantity
Figure 4.5 Two Intersecting Demand Curves

∆ p1
∆ p2
A
Price

p
∆p

Ds Df

0 q

Quantity
Figure 4.6 Elasticity on a Nonlinear Curve

Demand
Price

0 q
Figure 4.6 Elasticity on a Nonlinear Curve

Demand
Price

A
p

0 q
Quantity
Figure 4.6 Elasticity on a Nonlinear Curve

Demand
Price

A
p

B C

0 q
Quantity
Figure 4.6 Elasticity on a Nonlinear Curve

Demand

D
Price

A
p

B C

0 q
Quantity
Figure 4.6 Elasticity on a Nonlinear Curve

Demand
E

D
Price

A
p

B C

0 q
Quantity
Figure 4.7 Elasticity by the Exact Method

Price D

0 Quantity
Figure 4.7 Elasticity by the Exact Method

Price D

b’

0 Quantity
Figure 4.7 Elasticity by the Exact Method

Price D

b” b’

0 Quantity
Figure 4.7 Elasticity by the Exact Method

Price D

∆p

∆q b” b’

0 Quantity
Figure 4.8 Short-run and Long-run Demand Curves
Price

DL

Quantity
Figure 4.8 Short-run and Long-run Demand Curves

E0
p0
Price

Dl

Dso

q0

Quantity
Figure 4.8 Short-run and Long-run Demand Curves

E1
p1 E’1

E0
p0
Price

Dl

Ds1 Dso

q1 q’1 q0

Quantity
Figure 4.8 Short-run and Long-run Demand Curves

E2 E’2
p2
E1
p1 E’1

E0
p0
Price

Dl

Ds2 Ds1 Dso

q2 q’2 q1 q’1 q0

Quantity
Quantity Figure 4.9 The Relation Between Quantity Demanded and Income

0
Income
Figure 4.9 The Relation Between Quantity Demanded and Income

qm
Quantity

Zero income
elasticity

0 y1 y2
Income
Figure 4.9 The Relation Between Quantity Demanded and Income

qm

Positive income elasticity


Quantity

Zero income
elasticity

0 y1 y2
Income
Figure 4.9 The Relation Between Quantity Demanded and Income

qm

Positive income elasticity


Quantity

Zero income
elasticity
Negative income elasticity
[inferior good]

0 y1 y2
Income
Figure 4.10 Three Constant-elasticity Supply Curves
S1

Price
Price

p1 S2

Quantity
q1 Quantity [ii]. Infinite Elasticity

[i]. Zero Elasticity

S3
Price

Quantity
[iii]. Unit Elasticity
Figure 4.10 Three Constant-elasticity Supply Curves
S1

Price
Price

p1 S2

Quantity
q1 Quantity [ii]. Infinite Elasticity

[i]. Zero Elasticity

S3
Price

∆p

∆q p

q Quantity
[iii]. Unit Elasticity