CH 4 - AS

Introduction to Micro-Economics
AS/ECON1000 3.0
Sections C
MWF, 12:30 – 1:30
Course Outline:
http://dept.econ.yorku.ca
Web site:
www.noordeh.pageout.net
1
Contact Information
Course Director: Professor A. Noordeh
Office 1078 Vari Hall (VH)

Tel: (416) 736-2100 Ext. 33344
email: anoordeh@econ.yorku.ca
Office Hours: MW 1:30 – 2:30
General Info about Economic Courses/Programs:
Department of Economics: 1144 Vari Hall
Tel: (416) 736 – 5322
2
Teaching Assistants
1098 Vari Hall
Xiaoyu Sun
• M & R: 8:30 – 11:30
Hui Feng
• W & R: 8:30 – 11:30
Miguel Castro-Lopez
• W, 9:30 – 11:30; R: 2:30 – 4:40 & F: 10:30
– 12:30
Alex Guimaraes
• T, TR 9:30 – 12:30
3
Student Evaluation
Option 1:
– Midterm Exam (40%)
– Final Exam (60%)
Option 2:
– Online Assignments (20%) – Requires “APLIA” online
program (Approx. $35 CAN)
– Midterm Exam (30%)
– Final Exam (50%) – Covers the entire term’s work
Final exam date: TBA
4
Midterm Exam
Important Notice
Change Change Change
Two in-class midterm Tests:
1. Test 1:Monday October 15, 07

2. Test 2:Monday November 12, 07
Weights:
Option1: 20% each test
Option2: 15% each test
5
Assignments
1. Register with “APLIA”:
http://www.aplia.com
2. Use Course Key:
W7S2-5ZUU-VYE2
3. Payment grace period ends: Sept. 25
4. Assignment due dates
• Assignment 1: October 22, 07
• Assignment 2: November 30, 07
6
Other Important Dates
Sep. 20: Last date to enrol in the course

without the permission of the instructor
Oct. 5: Last date to enrol in the course with
the permission of the instructor
Nov. 9: Last date to drop the course without
receiving a grade
7
TEXT:
ECONOMICS
Canada in the Global Environment
Sixth Canadian Edition
by
Michael Parkin & Robin Bade
Publisher:
Pearson Addison Wesley
8
Study Guide
by
Avi J. Cohen & Harvey B. King
For
MICROECONOMICS
Canada in the Global Environment
Sixth Canadian Edition
9
Reading/Homework
for
September 17, 19 & 21, 2007
Reading: Text - Chs. 2, 3 & 4

Practice Exercises: All review Quizzes & Odd-
numbered problems
Study Guide: Chs. 2, 3 & 4
Key Concepts & all Multiple Choice questions
10
Reading/Homework
for
September 24,26 & 28, 2007
Reading: Text - Chs. 4, 5 & 6

Practice Exercises: All review Quizzes & Odd-
numbered problems
Study Guide: Chs. 4, 5 & 6
Key Concepts & all Multiple Choice questions
11
Elasticity
Chapter 4
12
Objectives
To Understand
–The concept of elasticity
–Price elasticity of demand
–Cross elasticity of demand
–Income elasticity of demand
–Elasticity of supply
–Define, calculate, and explain the factors that
influence the Above
13
What is Elasticity?
A measure of degree of
responsiveness of one variable
to change in another
14
Price Elasticity of Demand
An increase in supply
brings a small increase
in the quantity
demanded and a large
fall in price.
Thus, demand is not
very responsive to
change in price.
15
An increase in supply
brings a large increase
in the quantity
demanded and a small
fall in price.
Thus demand is very
responsive to
change in price
16
The contrast between the two previous

outcomes highlights the need for a
measure of the responsiveness of the
quantity demanded to a price change.
17
The price elasticity of demand is a unit-free

measure of the responsiveness of the quantity
demanded of a good to a change in its price when
all other influences on buyers’ plans remain the
same.
Calculating Elasticity:
% Change in Q
% Change in P
18
19
The price
elasticity of
demand is
(1/5)/(1/20)
= 20/5 = 4.
20
The formula yields a negative value, because

price and quantity move in opposite directions.
But it is the magnitude, or absolute value,
of the measure that reveals how responsive the
quantity change has been to a price change.
21
Inelastic and Elastic Demand

– Demand can be inelastic, unit elastic, or elastic.
– perfectly inelastic demand
– Perfectly elastic demand
22
23
24
25
Elasticity
Along a
Straight-Line
Demand
Curve
26
Exercise1:
P=25 to P=20
Q=0 to Q=10
E=?
27
Exercise 2:
P= 10 to P=5,
Q= 30 to Q 40
E=?
28
Exercise3:
P=15 to P=10, and
Q=20 to Q=30
E=?
29
Point Elasticity for a Linear Demand
Curve
Summary of the important implications of the above equation for any linear
demand curve:
The elasticity of demand varies from ∞ at the price intercept
to 0 at the quantity intercept.
The elasticity of demand at the midpoint equals 1.
The demand curve is elastic above the midpoint; that is, εp > 1.
The demand curve is inelastic below the midpoint; that is, εp < 1.
The Elasticity of Demand for a Linear Demand
Curve
31
Total Revenue and Elasticity
Total Revenue(TR) = P*Q
So, ΔP or Δ Q Δ TR
Does an increase in price always increase total

revenue?
32
Elasticity (E) and Total Revenue (TR)
The change in total revenue due to a change

in price depends on the elasticity of demand:
E > 1:P ↓⇒ TR ↑
E < 1:P ↓⇒ TR ↓
E = 1:P ↑↓⇒ TR
33
The relationship
between elasticity of
demand for pizzas and
the total revenue from
pizzas.
In part a (shown here),
as the price falls from
$25 to $12.50,
demand is elastic, and
total revenue
increases.
34
35
Your Expenditure and Your Elasticity
Are Total REV. & Total EXP. equal?
36
Price Elasticity of Demand: The Factors
That Influence the Elasticity of Demand
• The closeness of substitutes
The closer the substitutes, the more elastic are the demand for it.
Necessities & Luxuries
• The proportion of income spent on the

good.
The greater the proportion of income consumers spent on a good,
the larger is its elasticity of demand.
• The time elapsed since a price change

The more time consumers have to adjust to a price change, or the
longer that a good can be stored without losing its value, the more
elastic is the demand for that good.
37
More Elasticities of Demand
Cross Elasticity (CE) of Demand

–Substitute – CE>0
–Compliment – CE<0
–The formula:
Percentage change in quantity demanded
Percentage change in price of substitute or
complement
38
Income Elasticity of Demand

The income elasticity of demand measures how the
quantity demanded of a good responds to a change
in income, other things equal.
The formula:
Percentage change in quantity demanded
Percentage change in income
39
If the income elasticity of demand:

>0 - the good is a normal good
<0 - the good is an inferior good.
40
Price Elasticity of Supply
41
Price Elasticity of Supply
42
Elasticity of Supply
The elasticity of supply measures the

responsiveness of the quantity supplied to a
change in the price of a good when all other
influences on selling plans remain the same.
Calculating the Elasticity of Supply:
Percentage change in quantity supplied

Percentage change in price
43
Elasticity of Supply: Special Cases
44
Elasticity of Supply
The Factors That Influence the Elasticity of Supply

– Resource substitution possibilities
The easier it is to substitute among the resources used
to produce a good or service, the greater is its
elasticity of supply.
– The time frame for supply decisions
The more time that passes after a price change, the
greater is the elasticity of supply (Case of price ceiling
and rental units – SR vs. LR).
45
END
46

CH 4 - AS

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CH 4 - AS

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Introduction to Micro-Economics

Office 1078 Vari Hall (VH)

Final exam date: TBA

1. Test 1:Monday October 15, 07

Sep. 20: Last date to enrol in the course

Reading: Text - Chs. 2, 3 & 4

Reading: Text - Chs. 4, 5 & 6

The contrast between the two previous

The price elasticity of demand is a unit-free

The formula yields a negative value, because

Inelastic and Elastic Demand

Total Revenue and Elasticity

Total Revenue(TR) = P*Q

Does an increase in price always increase total

The change in total revenue due to a change

Your Expenditure and Your Elasticity

Are Total REV. & Total EXP. equal?

• The proportion of income spent on the

• The time elapsed since a price change

Cross Elasticity (CE) of Demand

Income Elasticity of Demand

If the income elasticity of demand:

The elasticity of supply measures the

Calculating the Elasticity of Supply:

Percentage change in quantity supplied

The Factors That Influence the Elasticity of Supply

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