chapter-5PPT文档格式.ppt

1、What is the price elasticity of demand?How is it related to the demand curve?How is it related to revenue&expenditure?What is the price elasticity of supply?How is it related to the supply curve?What are the income and cross-price elasticities of demand?1 1ELASTICITY AND ITS APPLICATIONYou design we

2、bsites for local businesses.You charge$200 per website,and currently sell 12 websites per month.Your costs are rising（including the opportunity cost of your time）,so you consider raising the price to$250.The law of demand says that you wont sell as many websites if you raise your price.How many fewe

3、r websites?How much will your revenue fall,or might it increase?A scenario2 2ELASTICITY AND ITS APPLICATIONElasticityBasic idea:Elasticity measures how much one variable responds to changes in another variable.One type of elasticity measures how much demand for your websites will fall if you raise y

4、our price.Definition:Elasticity is a numerical measure of the responsiveness of Qd or Qs to one of its determinants.3ELASTICITY AND ITS APPLICATIONPrice Elasticity of DemandPrice elasticity of demand measures how much Qd responds to a change in P.Price elasticity of demand=Percentage change in QdPer

5、centage change in PLoosely speaking,it measures the price-sensitivity of buyers demand.4ELASTICITY AND ITS APPLICATIONPrice Elasticity of DemandPrice elasticity of demand equals PQDQ2P2P1Q1P rises by 10%Q falls by 15%15%10%=1.5Price elasticity of demand=Percentage change in QdPercentage change in PE

6、xample:5ELASTICITY AND ITS APPLICATIONPrice Elasticity of DemandAlong a D curve,P and Q move in opposite directions,which would make price elasticity negative.We will drop the minus sign and report all price elasticities as positive numbers.PQDQ2P2P1Q1Price elasticity of demand=Percentage change in

7、QdPercentage change in P6ELASTICITY AND ITS APPLICATIONCalculating Percentage ChangesPQD$2508B$20012ADemand for your websitesStandard method of computing the percentage（%）change:end value start valuestart valuex 100%Going from A to B,the%change in P equals（$250$200）/$200=25%7ELASTICITY AND ITS APPLI

8、CATIONCalculating Percentage ChangesPQD$2508B$20012ADemand for your websitesProblem:The standard method gives different answers depending on where you start.From A to B,P rises 25%,Q falls 33%,elasticity=33/25=1.33From B to A,P falls 20%,Q rises 50%,elasticity=50/20=2.50 8ELASTICITY AND ITS APPLICAT

9、IONCalculating Percentage ChangesSo,we instead use the midpoint method:end value start valuemidpointx 100%The midpoint is the number halfway between the start&end values,the average of those values.It doesnt matter which value you use as the“start”and which as the“end”you get the same answer either

10、way!9ELASTICITY AND ITS APPLICATIONCalculating Percentage ChangesUsing the midpoint method,the%change in P equals$250$200$225x 100%=22.2%The%change in Q equals12 810 x 100%=40.0%The price elasticity of demand equals40/22.2 =1.810ELASTICITY AND ITS APPLICATIONA C T I V E L E A R N I N G A C T I V E L

11、 E A R N I N G 1 1 Calculate an elasticity11Use the following information to calculate the price elasticity of demand for hotel rooms:if P=$70,Qd=5000if P=$90,Qd=300011ELASTICITY AND ITS APPLICATIONA C T I V E L E A R N I N G A C T I V E L E A R N I N G 1 1 Answers12Use midpoint method to calculate%

12、change in Qd（5000 3000）/4000=50%change in P（$90$70）/$80=25%The price elasticity of demand equals50%25%=2.012ELASTICITY AND ITS APPLICATIONWhat determines price elasticity?To learn the determinants of price elasticity,we look at a series of examples.Each compares two common goods.In each example:Supp

13、ose the prices of both goods rise by 20%.The good for which Qd falls the most（in percent）has the highest price elasticity of demand.Which good is it?Why?What lesson does the example teach us about the determinants of the price elasticity of demand?13ELASTICITY AND ITS APPLICATIONEXAMPLE 1:Breakfast

14、cereal vs.SunscreenThe prices of both of these goods rise by 20%.For which good does Qd drop the most?Breakfast cereal has close substitutes（e.g.,pancakes,Eggo waffles,leftover pizza）,so buyers can easily switch if the price rises.Sunscreen has no close substitutes,so consumers would probably not bu

15、y much less if its price rises.Lesson:Price elasticity is higher when close substitutes are available.14ELASTICITY AND ITS APPLICATIONEXAMPLE 2:“Blue Jeans”vs.“Clothing”The prices of both goods rise by 20%.For which good does Qd drop the most?For a narrowly defined good such as blue jeans,there are many substitutes（khakis,shorts,Speedos）.There are fewer substitutes available for broadly defined goods.（There arent too many substitutes f