曼昆经济学原理英文版文案加习题答案5章ELASTICITY AND ITS APPLICATION.docx

曼昆经济学原理英文版文案加习题答案5章ELASTICITY AND ITS APPLICATION.docx

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曼昆经济学原理英文版文案加习题答案5章ELASTICITYANDITSAPPLICATION

WHAT’SNEWINTHESEVENTHEDITION:

Therearenomajorchangestothischapter.

LEARNINGOBJECTIVES:

Bytheendofthischapter,studentsshouldunderstand:

Øthemeaningoftheelasticityofdemand.

Øwhatdeterminestheelasticityofdemand.

Øthemeaningoftheelasticityofsupply.

Øwhatdeterminestheelasticityofsupply.

Øtheconceptofelasticityinthreeverydifferentmarkets（themarketforwheat,themarketforoil,andthemarketforillegaldrugs）.

CONTEXTANDPURPOSE:

Chapter5isthesecondchapterofathree-chaptersequencethatdealswithsupplyanddemandandhowmarketswork.Chapter4introducedsupplyanddemand.Chapter5showshowmuchbuyersandsellersrespondtochangesinmarketconditions.Chapter6willaddresstheimpactofgovernmentpolicesoncompetitivemarkets.

ThepurposeofChapter5istoaddprecisiontothesupply-and-demandmodel.Weintroducetheconceptofelasticity,whichmeasurestheresponsivenessofbuyersandsellerstochangesineconomicvariablessuchaspricesandincome.Theconceptofelasticityallowsustomakequantitativeobservationsabouttheimpactofchangesinsupplyanddemandonequilibriumpricesandquantities.

KEYPOINTS:

∙Thepriceelasticityofdemandmeasureshowmuchthequantitydemandedrespondstochangesintheprice.Demandtendstobemoreelasticifclosesubstitutesareavailable,ifthegoodisaluxuryratherthananecessity,ifthemarketisnarrowlydefined,orifbuyershavesubstantialtimetoreacttoapricechange.

∙Thepriceelasticityofdemandiscalculatedasthepercentagechangeinquantitydemandeddividedbythepercentagechangeinprice.Ifquantitydemandedmovesproportionatelylessthantheprice,thentheelasticityislessthanone,anddemandissaidtobeinelastic.Ifquantitydemandedmovesproportionatelymorethantheprice,thentheelasticityisgreaterthanone,anddemandissaidtobeelastic.

∙Totalrevenue,thetotalamountpaidforagood,equalsthepriceofthegoodtimesthequantitysold.Forinelasticdemandcurves,totalrevenuemovesinthesamedirectionastheprice.Forelasticdemandcurves,totalrevenuemovesintheoppositedirectionastheprice.

∙Theincomeelasticityofdemandmeasureshowmuchthequantitydemandedrespondstochangesinconsumers’income.Thecross-priceelasticityofdemandmeasureshowmuchthequantitydemandedofonegoodrespondstothepriceofanothergood.

∙Thepriceelasticityofsupplymeasureshowmuchthequantitysuppliedrespondstochangesintheprice.Thiselasticityoftendependsonthetimehorizonunderconsideration.Inmostmarkets,supplyismoreelasticinthelongrunthanintheshortrun.

∙Thepriceelasticityofsupplyiscalculatedasthepercentagechangeinquantitysupplieddividedbythepercentagechangeinprice.Ifquantitysuppliedmovesproportionatelylessthantheprice,thentheelasticityislessthanone,andsupplyissaidtobeinelastic.Ifquantitysuppliedmovesproportionatelymorethantheprice,thentheelasticityisgreaterthanone,andsupplyissaidtobeelastic.

∙Thetoolsofsupplyanddemandcanbeappliedinmanydifferentkindsofmarkets.Thischapterusesthemtoanalyzethemarketforwheat,themarketforoil,andthemarketforillegaldrugs.

CHAPTEROUTLINE:

I.TheElasticityofDemand

A.Definitionofelasticity:

ameasureoftheresponsivenessofquantitydemandedorquantitysuppliedtooneofitsdeterminants.

B.ThePriceElasticityofDemandandItsDeterminants

1.Definitionofpriceelasticityofdemand:

ameasureofhowmuchthequantitydemandedofagoodrespondstoachangeinthepriceofthatgood,computedasthepercentagechangeinquantitydemandeddividedbythepercentagechangeinprice.

2.DeterminantsofthePriceElasticityofDemand

a.AvailabilityofCloseSubstitutes:

themoresubstitutesagoodhas,themoreelasticitsdemand.

b.NecessitiesversusLuxuries:

necessitiesaremorepriceinelastic.

c.Definitionofthemarket:

narrowlydefinedmarkets（icecream）havemoreelasticdemandthanbroadlydefinedmarkets（food）.

d.TimeHorizon:

goodstendtohavemoreelasticdemandoverlongertimehorizons.

C.ComputingthePriceElasticityofDemand

1.Formula

Workthroughafewelasticitycalculations,startingwiththeexampleinthebook.Forprinciplesofeconomicscourseswherethereisnomathematicalprerequisite,thismaybedifficultforsomestudents.Workingthroughafewsimpleexampleswillhelptoalleviatesomeofthestudents’anxiety.Showeverystepofthealgebrainvolved.

2.Example:

thepriceoficecreamrisesby10%andquantitydemandedfallsby20%.

Priceelasticityofdemand=（20%）/（10%）=2

3.Becausethereisaninverserelationshipbetweenpriceandquantitydemanded（thepriceoficecreamroseby10%andthequantitydemandedfellby20%）,thepriceelasticityofdemandissometimesreportedasanegativenumber.Wewillignoretheminussignandconcentrateontheabsolutevalueoftheelasticity.

Studentshatethis!

Explainthatitreallymakesthingseasierandmakesmoresensebecauselargerelasticities（inabsolutevalue）implygreatersensitivityandresponsiveness.

D.TheMidpointMethod:

ABetterWaytoCalculatePercentageChangesandElasticities

1.Becauseweusepercentagechangesincalculatingthepriceelasticityofdemand,theelasticitycalculatedbygoingfromonepointtoanotheronademandcurvewillbedifferentfromanelasticitycalculatedbygoingfromthesecondpointtothefirst.Thisdifferencearisesbecausethepercentagechangesarecalculatedusingadifferentbase.

a.Awayaroundthisproblemistousethemidpointmethod.

b.Usingthemidpointmethodinvolvescalculatingthepercentagechangeineitherpriceorquantitydemandedbydividingthechangeinthevariablebythemidpointbetweentheinitialandfinallevelsratherthanbytheinitiallevelitself.

c.Example:

thepricerisesfrom$4to$6andquantitydemandedfallsfrom120to80.

%changeinprice=（6−4）/5×100=40%

%changeinquantitydemanded=（120−80）/100x100=40%

priceelasticityofdemand=40/40=1

E.TheVarietyofDemandCurves

Figure1

Toclearlyshowthedifferencesbetweenrelativelyelasticandrelativelyinelasticdemandcurves,drawagraphontheboardshowingarelativelyflatdemandcurveandoneshowingarelativelysteepdemandcurve.Showthatanygivenchangeinpricewillresultinalargerchangeinquantitydemandedifthedemandcurveisrelativelyflat.Usethesamemethodwhendiscussingtheshapeofthesupplycurvelaterinthechapter.

1.ClassificationofElasticity

a.Whenthepriceelasticityofdemandisgreaterthanone,demandisdefinedtobeelastic.

b.Whenthepriceelasticityofdemandislessthanone,thedemandisdefinedtobeinelastic.

c.Whenthepriceelasticityofdemandisequaltoone,thedemandissaidtohaveunitelasticity.

Activity1—HowtheBallBounces

Type:

In-classdemonstration

Topics:

Elastic,inelastic

Materialsneeded:

Onerubberballandone“dead”ball.The“dead”ballismadeofshock-absorbingmaterialanddoesn’tbounce.Museumstoresandmagicshopscarrythem.

Time:

1minute

Classlimitations:

Worksinanysizeclass

Purpose

Thisquick,butmemorable,demonstrationcanbeusedtointroducetheconceptsofelasticandinelastic.

Instructions

Bringtwostudentstothefrontoftheclass.Giveeachofthemaballandaskthemtobounceitoffthefloorandcatchit.Thestudentwiththerubberballcandothiseasily.Thestudentwiththe“dead”ballwillnotbeabletobounceithighenoughtocatch,nomatterhowhardheorshethrowsit.

Explainthatoneballiselastic;itisresponsivetochange.Theotherballisinelastic;itrespondsverylittletochange.Thesephysicalpropertiesofelasticandinelasticareanalogoustotheeconomicconceptsofelasticandinelastic.

2.Ingeneral,theflatterthedemandcurvethatpassesthroughagivenpoint,themoreelasticthedemand.

3.ExtremeCases

a.Whenthepriceelasticityofdemandisequaltozero,thedemandisperfectlyinelasticandisaverticalline.

b.Whenthepriceelasticityofdemandisinfinite,thedemandisperfectlyelasticandisahorizontalline.

Makesurethatyouprovideseveralexamplesofgoodswiththesetypesofdemandcurves.Youmaywanttopointoutthatstudentswillseetheperfectlyelasticdemandcurveagainwhencompetitivefirmsarediscussed.

4.FYI:

AFewElasticitiesfromtheRealWorld

F.TotalRevenueandthePriceElasticityofDemand

Figure2

1.Definitionoftotalrevenue:

theamountpaidbybuyersandreceivedbysellersofagood,computedasthepriceofthegoodtimesthequantitysold.

Anothertermforpricetimesquantityis“totalexpenditure.”Thistermissometimesusedinquestionsfoundinthestudyguideandtestbank.Itisalsoimportanttopointthisoutwhendiscussingthemarketforillegaldrugsattheendofthechapter.

Studentsfindtherelationshipbetweenchangesintotalrevenueandelasticitydifficulttounderstand.Itmaytakeseveralthoroughdiscussionsofthismaterialbeforestudentswillbeabletomasterit.

2.Ifdemandisinelastic,thepercentagechangeinpricewillbegreaterthanthepercentagechangeinquantitydemanded.

Figure3

a.Ifpricerises,quantitydemandedfalls,andtotalrevenuewillrise（becausetheincreaseinpricewillbelargerthanthedecreaseinquantitydemanded）.

b.Ifpricefalls,quantitydemandedrises,andtotalrevenuewillfall（becausethefallinpricewillbelargerthantheincreaseinquantitydemanded）.

3.Ifdemandiselastic,thepercentagechangeinquantitydemandedwillbegreaterthanthepercentagechangei