第5章 弹性及其应用

Elasticity and its application1. The discussion of demand was qualitative, not quantitative. That is, wediscussed the direction in which quantity demanded moves but not the size of the change.2. Elasticity: a measure of the responsiveness of quantity demanded orquantity supplied to one of its determinants.The elasticity of demandThe price elasticity of demand and its determinants1. Price elasticity of demand: a measure of how much the quantity demandedof a good responds to a change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price.2. Demand for a good is said to be elastic if the quantity demanded respondssubstantially to changes in the price.General rules about what determines the price elasticity of demand: Availability of close substitutesGoods with close substitutes tend to have more elastic demand because it is easier for consumers to witch from that good to others.Necessities versus luxuriesNecessities tend to have inelastic demands, whereas luxuries have elastic demands.Definition of the market1. The elasticity of demand in any market depends on how we draw theboundaries of the market.2. Narrowly defined markets tend to have more elastic demand than broadlydefined markets because it is easier to find close substitutes for narrowly defined goods. For example, food, a broad category, has a fairly inelastic demand because there are no good substitutes for food.Time horizonGoods tend to have more elastic demand over longer time.Computing the price elasticity of demandPrice elasticity of demand= percentage change in quantity demanded / percentage change in priceThe midpoint method: a better way to calculate percentage changes and elasticitiesPrice elasticity of demand= (Q2-Q1)[(Q2+Q1)/2] / (P2-P1)[(P2+P1)/2]The variety of demand curves1. Demand is elastic when the elasticity is greater than 1; Demand is elasticwhen the inelasticity is less than 1; Demand has unit elasticity when the elasticity is exactly 1.2. Rule of thumb: the flatter the demand curve that passes through a givenpoint, the greater the price elasticity of demand. The steeper the demand curve that passes through a given point, the smaller the price elasticity of demand.Total revenue and the price elasticity of demandTotal revenue: the amount paid by buyers and received by sellers of a good, computed as the price of the good as the price of the good times the quantity sold.QDemand is inelastic, price and total revenue move in the same direction. Demand is elastic, price and total revenue move in the opposite direction. Demand is unite elastic, total revenue remains constant when the price changes.Elasticity and total revenue along a linear demand curveEven though the slope of a linear demand curve is constant, the elasticity is not. The reason is that the slope is the ratio of changes in the two variables, whereas the elasticity is the ratio of percentage changes in the two variables.PriceQuantityEven though the slope of a linear demand curve is constant, the elasticity is not. The reason is that the slope is the ratio of changes in the two variables, whereas the elasticity is the ratio of percentage changes in the two variables. Other demand elasticitiesThe income elasticity of demand1. Income elasticity of demand: a measure of how much the quantitydemanded of a good responds to a change in consumers’income, computed as the percentage change in quantity demanded divided by the percentage change in income.2. Income elasticity of demand= percentage change in quantity demanded /percentage change in income3. Normal goods have positive income elasticities; inferior goods havenegative income elasticities. Necessities have small income elasticities;luxuries have large income elasticities.The cross-price elasticity of demand1. Cross-price elasticity of demand: a measure of how much the quantitydemanded of one good responds to a change in the price of another good, computed as the percentage change in quantity demanded of the fist good divided by the percentage change in the price of the second good.2. Cross-price elasticity of demand= percentage change in quantitydemanded of good 1/ percentage change in the price of good 23. The cross-price elasticity of substitutes is positive; the cross-price elasticityof complements is negative.The elasticities of supplyThe price elasticity of supply and its determinants1. Price elasticity of supply: a measure of how much the quantity supplied ofa good responds to a change in the price of that good, computed as thepercentage change in quantity supplied divided by the percentage change in price.2. Supply of a good is said to be elastic if the quantity supplied respondssubstantially to changes in the price. Supply of a good is said to be inelastic if the quantity supplied responds only slightly to changes in the price3. Determinant of the price elasticity of supply: the time period—supply isusually more elastic in the long run than in the short run.Computing the price elasticity of supplyPrice elasticity of supply = percentage change in quantity supplied / percentage change in priceThe variety of supply curvesIn some markets, the elasticity of supply is not constant but varies over the supply curve.PriceQuantity Three applications of supply, demand, andelasticityCan good news for farming be bad news for farmers?Why did OPEC fail to keep the price of oil high?Does drug interdiction increase or decrease drug-related crime?。