曼昆经济学 宏观经济学 第五版 教师参考手册 chap05

WHAT’S NEW:The discussion of “The Midpoint Formula” and “Elasticity Along a Linear Demand Curve” are now part of the main text. The cross-price elasticity of demand is also now included in this chapter.LEARNING OBJECTIVES:By the end of this chapter, students should understand:the meaning of the elasticity of demand.what determines the elasticity of demand.the meaning of the elasticity of supply.what determines the elasticity of supply.the concept of elasticity in three very different markets (the market for wheat, the market foroil, and the market for illegal drugs).KEY POINTS:1. The price elasticity of demand measures how much the quantity demanded responds tochanges in the price. Demand tends to be more elastic if the good is a luxury rather than a necessity, if close substitutes are available, if the market is narrowly defined, or if buyers have substantial time to react to a price change.2. The price elasticity of demand is calculated as the percentage change in quantity demandeddivided by the percentage change in price. If the elasticity is less than one, so that quantity demanded moves proportionately less than the price, demand is said to be inelastic. If the elasticity is greater than one, so that quantity demanded moves proportionately more than the price, demand is said to be elastic.3. Total revenue, the total amount paid for a good, equals the price of the good times thequantity sold. For inelastic demand curves, total revenue rises as price rises. For elastic demand curves, total revenue falls as price rises.5ELASTICITY AND ITSAPPLICATION2Chapter 5 — ELASTICITY AND ITS APPLICATION4.The income elasticity of demand measures how much the quantity demanded responds tochanges in consumers’ income. The cross-price elasticity of demand measures how much the quantity demanded of one good responds to the price of another good.5.The price elasticity of supply measures how much the quantity supplied responds to changesin the price. This elasticity often depends on the time horizon under consideration. In most markets, supply is more elastic in the long run than in the short run.6.The price elasticity of supply is calculated as the percentage change in quantity supplieddivided by the percentage change in price. If the elasticity is less than one, so that quantity supplied moves proportionately less than the price, supply is said to be inelastic. If theelasticity is greater than one, so that quantity supplied moves proportionately more than the price, supply is said to be elastic.7.The tools of supply and demand can be applied in many different kinds of markets. Thischapter uses them to analyze the market for wheat, the market for oil, and the market for illegal drugs.CHAPTER OUTLINE:I.The Elasticity of DemandA.Definition of Elasticity: a measure of the responsiveness of quantitydemanded or quantity supplied to one of its determinants.B.The Price Elasticity of Demand and Its Determinants1.Definition of Price Elasticity of Demand: a measure of how muchthe quantity demanded of a good responds to a change in theprice of that good, computed as the percentage change inquantity demanded divided by the percentage change in price.2.Determinants of Price Elasticity of Demanda.Necessities versus Luxuries: necessities are more price inelastic.b.Availability of Close Substitutes: the more substitutes a good has,the more elastic its demand.c.Definition of the Market: narrowly defined markets (ice cream)have more elastic demand than broadly defined markets (food).d.Time Horizon: goods tend to have more elastic demand overlonger time horizons.puting the Price Elasticity of Demand1.FormulaChapter 5 — ELASTICITY AND ITS APPLICATION3Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.by 20%.Price elasticity of demand = (20%)/(10%) = 23.Because there is an inverse relationship between price and quantity demanded (the price of ice cream rose by 10% and the quantity demanded fell by 20%), the price elasticity of demand is sometimes reported as a negative number. We will ignore the minus sign and concentrate on the absolute value of the elasticity.D.The Midpoint Method: A Better Way to Calculate Percentage Changes and Elasticities1.Because we use percentage changes in calculating the price elasticity of demand, the elasticity calculated by going from point A to point B on a demand curve will be different than an elasticity calculated by going from point B to point A. a. A way around this is called the midpoint method.b.Using the midpoint method involves calculating the percentage change in either price or quantity demanded by dividing the change in the variable by the midpoint between the initial and final levels rather than by the initial level itself.c. Example: price rises from $4 to $6.% change in price = (6 - 4)/5 × 100% = 40%E.The Variety of Demand Curves1.Classification of Elasticity4 Chapter5 — ELASTICITY AND ITS APPLICATIONa.When the elasticity is greater than one, the demand is considered to be elastic.b. When the elasticity is less than one, the demand is considered to be inelastic.c.When the elasticity is equal to one, the demand is called unit elastic.2.Slope of Demand Curve: in general, the flatter the demand curve the more elastic the demand.ALTERNATIVE CLASSROOM EXAMPLE:The price of a compact disc player rises from $100 to $150, while the quantity demanded falls from 1200 to 900.To calculate the price elasticity of demand, we use the midpoint formula to calculate the % change in quantity demanded and the % change in price:% change in quantity demanded = (1200 – 900)/1050 = .2857 = 28.57% % change in price = (150 – 100)/125 = .40 = 40%The price elasticity of demand is equal to:% change in quantity demanded / % change in price = 28.57/40 = 0.71Given this information, you can now:▪ classify the demand as elastic, inelastic or unit elastic.▪ calculate total revenue both before and after the price change.▪ calculate the percentage change in quantity demanded if price was to rise another 5%(using the price elasticity of demand they calculated).▪ calculate the percentage change in price needed to increase quantity demanded by 25%(using the price elasticity of demand they calculated).Chapter 5 — ELASTICITY AND ITS APPLICATION5Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.3.Extreme Cases a. When the elasticity is equal to zero, the demand is perfectly inelastic and is a vertical line.b.When the elasticity is infinite, the demand is perfectly elastic and is a horizontal line.F.Total Revenue and the Price Elasticity of Demand2.Definition of Total Revenue: the amount paid by buyers andreceived by sellers of a good, computed as the price of the good times the quantity sold .2.If demand is inelastic, the change in price will be greater than the change in quantity demanded.6Chapter 5 — ELASTICITY AND ITS APPLICATIONa.If price rises, quantity demanded falls, and total revenue will rise(because the increase in price was larger than the decrease inquantity demanded).b.If price falls, quantity demanded rises, and total revenue will fall(because the fall in price was larger than the increase in quantitydemanded).3.If demand is elastic, the change in quantity demanded will be greater thanthe change in price.a.If price rises, quantity demanded falls, and total revenue will fall (because the increase in price was smaller than the decrease in quantity demanded).b.If price falls, quantity demanded rises, and total revenue will rise(because the fall in price was smaller than the increase inquantity demanded).4.If demand is unit elastic, the change in price will be equal to the changein quantity demanded.a.If price rises, quantity demanded falls, and total revenue willremain the same (because the increase in price was equal to thedecrease in quantity demanded).b.If price falls, quantity demanded rises, and total revenue willremain the same (because the fall in price was equal to theincrease in quantity demanded).G.Elasticity and Total Revenue Along a Linear Demand Curve1.The slope of a linear demand curve is constant, but the elasticity is not.a.At points with a low price and a high quantity, demand isinelastic.b. At points with a high price and a low quantity, demand is elastic.Chapter 5 — ELASTICITY AND ITS APPLICATION7Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.2.Table 5-1 shows how total revenue also varies at each point along the demand curve.H. Case Study: Pricing Admission to a Museum1. You are a curator of a major art museum and you need to increase revenue. Should you raise or lower the price of admission?2.It depends on the price elasticity of demand.I.In the News: On the Road with Elasticity1.When a firm sets the price of its product, it must take demand and elasticity of demand into consideration.2.This is an article from The Washington Post about a firm setting its price for a private toll road.J.Other Demand Elasticities 1. Definition of Income Elasticity of Demand: a measure of howmuch the quantity demanded of a good responds to a change in consumers’ income, computed as the percentage change inquantity demanded divided by the percentage change in income.a.Formula8 Chapter 5 — ELASTICITY AND ITS APPLICATIONb.Normal goods have positive income elasticities, while inferior goods have negative income elasticities.c.Necessities tend to have small income elasticities, while luxuries tend to have large income elasticities.2.Definition of Cross-Price Elasticity of Demand: a measure of how much the quantity demanded of one good responds to a change in the price of another good, computed as the percentage change in the quantity demanded of the first good divided by the percentage change in the price of the second good .a. Formulab.Substitutes have positive cross-price elasticities, while complements have negative cross-price elasticities.ALTERNATIVE CLASSROOM EXAMPLE:John’s income rises from $20,000 to $22,000 and the quantity of hamburger he buys each week falls from 2 pounds to 1 pound.% change in quantity demanded = (1-2)/1.5 = -.6667 = -66.67% % change in income = (22,000-20,000)/21,000 = .0952 = 9.52% income elasticity = 66.67% / 9.52% = -7.00Point out that hamburger is an inferior good for John. ALTERNATIVE CLASSROOM EXAMPLE:The price of apples rises from $1.00 per pound to $1.50 per pound. As a result, the quantity of oranges demanded rises from 8,000 per week to 9,500.% change in quantity of oranges demanded = (9,500-8,000)/8,750 = .1714 = 17.14% % change in price of apples = (1.50-1.00)/1.25 = .40 = 40% cross-price elasticity = 17.14% / 40% = 0.43Because the cross-price elasticity is positive, the two goods are substitutes.Chapter 5 — ELASTICITY AND ITS APPLICATION9Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.II. The Elasticity of SupplyA. The Price Elasticity of Supply and Its Determinants1.Definition of Price Elasticity of Supply: a measure of how much the quantity supplied of a good responds to a change in the price of that good, computed as the percentage change in quantity supplied divided by the percentage change in price. 2.Determinants of the Price Elasticity of Supply a. Flexibility of Sellers: goods which are somewhat fixed in supply (beachfront property) have inelastic supplies.b.Time Horizon: supply is usually more inelastic in the short run than in the long run.B.Computing the Price Elasticity of Supply 1.Formula2.Example: the price of milk increases from $2.85 per gallon to $3.15 per gallon and the quantity supplied rises from 9,000 to 11,000 gallons per month.% change in price = (3.15 – 2.85)/3.00 × 100% = 10%% change in quantity supplied = (11,000 - 9,000)/10,000 × 100% = 20% Price elasticity of supply = (20%)/(10%) = 2C.The Variety of Supply Curves10Chapter 5 — ELASTICITY AND ITS APPLICATION1.Slope of Supply Curve: in general, the flatter the supply curve the more elastic the supply. 2.Extreme Cases a. When the elasticity is equal to zero, the supply is perfectly inelastic and is a vertical line.b.When the elasticity is infinite, the supply is perfectly elastic and is a horizontal line.3.Because firms often have a maximum capacity for production, the elasticity of supply may be very high at low levels of quantity supplied and very low at high levels of quantity supplied.III. Three Applications of Supply, Demand, and Elasticity A.Can Good News for Farming Be Bad News for Farmers?1. New hybrid of wheat is more productive than those in the past. What happens?2. Supply increases, price falls, and quantity demanded rises.3. If demand is inelastic, the fall in price is greater than the increase in quantity demanded and total revenue falls.4.If demand is elastic, the fall in price is smaller than the rise in quantitydemanded and total revenue rises.B.Why Did OPEC Fail to Keep the Price of Oil High?1.OPEC reduced the amount of oil it was willing to supply to world markets.The decrease in supply led to an increase in the price of oil and adecrease in quantity demanded. The increase in price was much largerin the short run than the long run. Why?Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.2.The demand and supply of oil are much more inelastic in the short runthan the long run. The demand is more elastic in the long run becauseconsumers can adjust to the higher price of oil by carpooling or buying avehicle that gets better mileage. The supply is more elastic in the longrun because non-OPEC producers will respond to the higher price of oilby producing more.C.Does Drug Interdiction Increase or Decrease Drug-Related Crime?1.The federal government increases the number of federal agents devotedto the war on drugs. What happens?a.The supply of drugs decreases which raises the price and leadsto a reduction in quantity demanded. If demand is inelastic,total expenditure on drugs (same as total revenue) will increase.If demand is elastic, total expenditure will fall.b.Thus, if demand is inelastic, drug-related crime may rise.2.What happens if the government instead pursued a policy of drugeducation?a.The demand for drugs decreases which lowers price andquantity supplied. Total expenditure must fall (since both priceand quantity fall).b.Thus, drug education should not increase drug-related crime.ADJUNCT TEACHING TIPS AND WARM-UP ACTIVITIES:1.To clearly show the differences between relatively elastic and relatively inelastic demand (orsupply) curves, draw a graph on the board showing a relatively flat demand (supply) curve and one showing a relatively steep demand (supply) curve. Show that any given change in price will result in a larger change in quantity demanded (supplied) if the demand (supply) curve is relatively flat.2.On the first day that you cover elastici ty, pass out rubberbands to each student. “Define”elastic as the rubberband stretched and inelastic as the rubberband at rest. Hold therubberband at each end using both hands. Your right hand is Price and your left hand is Total Revenue. Stretch the rubberband up by raising your right hand and say, “When price rises…” Then stretch the rubberband even further by pulling your left hand down in theopposite direction and say, “…and total revenue falls…” Then have one of your students identify if demand is elastic or inelastic. (Since the rubberband is stretched, demand iselastic.) Now, start again. Pull your right arm up and say, “When price rises…” Bring your left hand up too and say, “…and total revenue rises…” Let them see that because therubberband is not stretched, demand must be inelastic.SOLUTIONS TO TEXT PROBLEMS:Quick Quizzes1. The price elasticity of demand is a measure of how much the quantity demanded of agood responds to a change in the price of that good, computed as the percentagechange in quantity demanded divided by the percentage change in price.The relationship between total revenue and the price elasticity of demand is: (1) when a demand curve is inelastic (a price elasticity less than 1), a price increase raises totalrevenue, and a price decrease reduces total revenue; (2) when a demand curve is elastic(a price elasticity greater than 1), a price increase reduces total revenue, and a priceHarcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.decrease raises total revenue; and (3) when a demand curve is unit elastic (a priceelasticity equal to 1), a change in price does not affect total revenue.2. The price elasticity of supply is a measure of how much the quantity supplied of a goodresponds to a change in the price of that good, computed as the percentage change inquantity supplied divided by the percentage change in price.The price elasticity of supply might be different in the long run than in the short runbecause over short periods of time, firms cannot easily change the size of their factories to make more or less of a good. Thus, in the short run, the quantity supplied is not very responsive to the price. However, over longer periods, firms can build new factories orclose old ones, or they can enter or exit a market. So, in the long run, the quantitysupplied can respond substantially to the price.3. A drought that destroys half of all farm crops could be good for farmers if the demandfor the crops is inelastic. The shift to the left of the supply curve leads to a priceincrease that raises total revenue because the price elasticity is less than one.Even though a drought could be good for farmers, they wouldn’t destroy their crops inthe absence of a drought because no one farmer would have an incentive to destroy her crops, since she takes the market price as given. Only if all farmers destroyed theircrops together, for example through a government program, would this plan work tomake farmers better off.Questions for Review1. The price elasticity of demand measures how much the quantity demanded responds toa change in price. The income elasticity of demand measures how much the quantitydemanded changes as consumer income changes.2. The determinants of the price elasticity of demand include whether the good is anecessity or a luxury, how available close substitutes are, how broadly defined themarket is, and the time horizon. Luxury goods have greater price elasticity thannecessities, goods with close substitutes have greater elasticity, goods in more narrowly defined markets have greater elasticity, and goods have greater elasticity the longer the time horizon.3. Elasticity greater than one means demand is elastic. When the elasticity is greater thanone, the percentage change in quantity demanded exceeds the percentage change inprice. When the elasticity equals zero, demand is perfectly inelastic. There’s no change in quantity demanded when there’s a change in price.4. Figure 5-1 presents a supply-and-demand diagram, showing equilibrium price,equilibrium quantity, and the total revenue received by producers. Total revenue equals the equilibrium price times the equilibrium quantity, which is the area of the rectangleshown in the figure.Figure 5-15. If demand is elastic, an increase in price reduces total revenue. With elastic demand, thequantity demanded falls by a greater percentage than the percentage increase in price.As a result, total revenue declines.6. A good with an income elasticity less than zero is called an inferior good because asincome rises, the quantity demanded declines.7. The price elasticity of supply is calculated as the percentage change in quantity supplieddivided by percentage change in price. It measures how much the quantity suppliedresponds to changes in the price.8. The price elasticity of supply of Picasso paintings is zero, since no matter how high pricerises, no more can ever be produced.9. The price elasticity of supply is usually larger in the long run than it is in the short run.Over short periods of time, firms cannot easily change the size of their factories to make more or less of a good, so the quantity supplied is not very responsive to price. Overlonger periods, firms can build new factories or close old ones, so the quantity supplied is more responsive to price.10. OPEC was unable to maintain a high price through the 1980s because the elasticity ofsupply and demand were more elastic in the long run. When the price of oil rose,producers of oil outside of OPEC increased oil exploration and built new extractioncapacity. Consumers responded with greater conservation efforts. As a result, supplyincreased and demand fell, leading to a lower price for oil in the long run.Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.Problems and Applications1. a. Mystery novels have more elastic demand than required textbooks, becausemystery novels have close substitutes and are a luxury good, while requiredtextbooks are a necessity with no close substitutes. If the price of mysterynovels were to rise, readers could substitute other types of novels, or buy fewernovels altogether. But if the price of required textbooks were to rise, studentswould have little choice but to pay the higher price. Thus the quantitydemanded of required textbooks is less responsive to price than the quantitydemanded of mystery novels.b. Beethoven recordings have more elastic demand than classical music recordingsin general. Beethoven recordings are a narrower market than classical musicrecordings, so it’s easy to find close substitutes for them. If the price ofBeethoven recordings were to rise, people could substitute other classicalrecordings, like Mozart. But if the price of all classical recordings were to rise,substitution would be more difficult (a transition from classical music to rap isunlikely!). Thus the quantity demanded of classical recordings is less responsiveto price than the quantity demanded of Beethoven recordings.c. Heating oil during the next five years has more elastic demand than heating oilduring the next six months. Goods have a more elastic demand over longer timehorizons. If the price of heating oil were to rise temporarily, consumers couldn’tswitch to other sources of fuel without great expense. But if the price of heatingoil were to be high for a long time, people would gradually switch to gas orelectric heat. As a result, the quantity demanded of heating oil during the nextsix months is less responsive to price than the quantity demanded of heating oilduring the next five years.d. Root beer has more elastic demand than water. Root beer is a luxury with closesubstitutes, while water is a necessity with no close substitutes. If the price ofwater were to rise, consumers have little choice but to pay the higher price. Butif the price of root beer were to rise, consumers could easily switch to othersodas. So the quantity demanded of root beer is more responsive to price thanthe quantity demanded of water.2. a. For business travelers, the price elasticity of demand when the price of ticketsrises from $200 to $250 is [(2,000 - 1,900)/1,950]/[(250 - 200)/225] = 3/13 =0.23. For vacationers, the price elasticity of demand when the price of ticketsrises from $200 to $250 is [(800 - 600)/700] / [(250 - 200)/225] = 9/7 = 1.29.b. The price elasticity of demand for vacationers is higher than the elasticity forbusiness travelers because vacationers can more easily choose a different modeof transportation (like driving or taking the train). Business travelers are lesslikely to do so since time is more important to them and their schedules are lessadaptable.3. a. If your income is $10,000, your price elasticity of demand as the price ofcompact discs rises from $8 to $10 is [(40 - 32)/36] / [(10 - 8)/9] = 1. If yourincome is $12,000, the elasticity is [(50 - 45)/47.5] / [(10 - 8)/9] = 9/19 = 0.47.b. If the price is $12, your income elasticity of demand as your income increasesfrom $10,000 to $12,000 is [(30 - 24)/27] / [(12,000 - 10,000)/11,000] = 11/9 =1.22. If the price is $16, your income elasticity of demand as your incomeincreases from $10,000 to $12,000 is [(12 - 8)/10] / [(12,000 - 10,000)/11,000]= 11/5 = 2.2.4. a. If Emily always spends one-third of her income on clothing, then her incomeelasticity of demand is one, since maintaining her clothing expenditures as aconstant fraction of her income means the percentage change in her quantity ofclothing must equal her percentage change in income. For example, supposethe price of clothing is $30, her income is $9,000, and she purchases 100clothing items. If her income rose 10 percent to $9,900, she’d spend a total of$3,300 on clothing, which is 110 clothing items, a 10 percent increase.b. Emily’s price elasticity of clothing demand is also one, since every percentagepoint increase in the price of clothing would lead her to reduce her quantitypurchased by the same percentage. Again, suppose the price of clothing is $30,her income is $9,000, and she purchases 100 clothing items. If the price ofclothing rose 1 percent to $30.30, she would purchase 99 clothing items, a 1percent reduction. [Note: This part of the problem can be confusing to studentsif they have an example with a larger percentage change and they use the pointelasticity. Only for a small percentage change will the answer work with anelasticity of one. Alternatively, they can get the second part if they use themidpoint method for any size change.]c. Since Emily spends a smaller proportion of her income on clothing, then for anygiven price, her quantity demanded will be lower. Thus her demand curve hasshifted to the left. But because she’ll again spend a constant fraction of herincome on clothing, her income and price elasticities of demand remain one.5. a. With a 4.3 percent decline in quantity following a 20 percent increase in price,the price elasticity of demand is only 4.3/20 = 0.215, which is fairly inelastic.b. With inelastic demand, the Transit Authority’s revenue rises when the fare rises.c. The elasticity estimate might be unreliable because it’s only the first mont h afterthe fare increase. As time goes by, people may switch to other means oftransportation in response to the price increase. So the elasticity may be largerin the long run than it is in the short run.6. Tom’s price elasticity of demand is zero, s ince he wants the same quantity regardless ofthe price. Jerry’s price elasticity of demand is one, since he spends the same amount on gas, no matter what the price, which means his percentage change in quantity is equalto the percentage change in price.7. To explain the fact that spending on restaurant meals declines more during economicdownturns than does spending on food to be eaten at home, economists look at theincome elasticity of demand. In economic downturns, people have lower income. Toexplain the fact, the income elasticity of restaurant meals must be larger than the income elasticity of spending on food to be eaten at home.8. a. With a price elasticity of demand of 0.4, reducing the quantity demanded ofcigarettes by 20 percent requires a 50 percent increase in price, since 20/50 =0.4. With the price of cigarettes currently $2, this would require an increase inthe price to $3.33 a pack using the midpoint method (note that ($3.33 -Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.。