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ELASTICITY AND I T S A P P L I C A T I O N
INSTRUCTOR
NGUYEN TAI VUONG
GROUP 6 :
1. Nguyen Nhat
Linh
2. Hoang Thi Le
3. Nguyen Ngoc
Mai
4. Pham Thuy
Linh
MAIN PARTS
Three
The Applications
The
Elasticity of Supply,
Elasticity
of Demand,
of Supply and
Demand
Elasticity
THE ELASTICITY OF DEMAND
Price elasticity of demand : A measure of how much
the quantity demanded of a good responds to a change in the
price of that good.
Factors affecting Elasticity
TR = P x Q
Inelastic
Demand
Elastic
Demand
General Rule
When a demand
When a demand In the special case
curve is elastic (a
curve is inelastic (a of unit elastic
price elasticity
price elasticity less demand (a price
greater than 1), a
than 1), a price elasticity exactly
price increase
increase raises equal to 1), a
reduces total
total revenue, and change in the
revenue, and a
a price decrease price does not
price decrease
reduces total affect total
raises total
revenue. revenue.
revenue.
ELASTICITY AND TOTAL REVENUE ALONG
A LINEAR DEMAND CURVE
OTHER DEMAND ELASTICITIES
The Cross-
A measure of how much the quantity
Price
demanded of one good responds to a
Elasticity of
change in the price of another good.
Demand
THE ELASTICITY OF SUPPLY
Seller
DETERMINANTS
Time
TIME
New buiding
COMPUTING THE PRICE
ELASTICITY OF SUPPLY
DOES DRUG
CAN GOOD
WHY DID INTERDICTION
NEWS FOR
OPEC FAIL TO INCREASE OR
FARMING BE
KEEP THE DECREASE
BAD NEWS
PRICE OF OIL DRUG-
FOR
HIGH? RELATED
FARMERS?
CRIME?
CAN GOOD NEWS FOR FARMING BE BAD NEWS FOR FARMERS ?
TECHNOLOGY
POLICY
WHY DID OPEC FAIL TO KEEP THE PRICE OF OIL HIGH?
In the short run In the long run
DOES DRUG INTERDICTION INCREASE
OR DECREASE DRUG-RELATED CRIME?
summa
ry
Price elasticity of
demand measures how The income elasticity
In most markets,
much the quantity of demand measures
supply is more elastic
demanded responds to how much the quantity
in the long run than in
changes in the price. demanded responds to
the short run.
Price elasticity of changes in consumers'
The price elasticity of
demand is calculated as income.
supply is calculated as
the percentage change in The cross-price
the percentage change
quantity demanded elasticity of demand
in quantity supplied
divided by the measures how much the
divided by the
percentage change in quantity demanded of
percentage change in
price. in good responds to the
price.
If a demand curve is price of another good.
The tools of supply
elastic, total revenue The price elasticity of
and demand can be
falls when the price supply measures how
applied in many
rises. much the quantity
different types of
If it is inelastic, total supplied responds to
markets.
revenue rises as the changes in the price
price rises.