Chapter 3 Elasticity and Demand The coefficient

Chapter 3 Elasticity and Demand • The coefficient of Demand elasticity • Elasticity and Total Revenue • Factors affecting Demand elasticity • Calculating Demand elasticity • Other elasticities • Marginal revenue, demand, and elasticity 1

Market Demand Curve • Firms are always trying to Max something: profit, market shares, or sales quantities etc. • Whenever they charge higher prices, smaller quantities will be incurred. • Firms are facing consumers’ demand curve. 2

Demand refers to the amount all consumers in the market are willing to & able to buy at a given price and over a given period of time. P Quantity demanded is decreasing when price increases. P 2 P 1 O Q 2 Q 1 Q Individual consumer demand curve 3

The law of demand There is an inverse relationship between the price of a good and the quantity demanded assuming all other factors that might influence demand are held constant. 4

Movement along or Shift • If own price changes, there is a movement along the demand curve (along DD); Price (P) D D 1 P 0* D 1 D • If other determinant Q 2 O Q 1 Q changes, there is a shift of the demand Shift of demand curve 5

Determinants of demand Substitute’s price (Ps) Product own price complimentary’s price (Pc) Demand Consumer tastes and preferences Consumer expectation about future market Etc. 6

Market demand function The factors other than “own price (Po)” which affect demand is described as the conditions of demand. 7

? Market demand function & Demand curve • Market demand curve shows the relationship between Q & P when all other relevant variables are held constant. • Market demand function explain the shifts in the demand curve resulting from changes in the variables other than the product’s price. 8

Concepts of elasticity • Elasticity estimates the extent to which one variable is likely to respond to anther variable’s change. • And the degree of elasticity can be measured by gauging the percentage changes of this two variables. p 81 9

Coefficient = Percentage change in one variable Percentage change in another variable 10

Classification of elasticity • Price elasticity of demand • Cross-price elasticity of demand • Income elasticity of demand 11

Price elasticity of demand • Price elasticity of demand (Ed) measures the responsiveness of quantity demanded of a product to changes in its own price. • Coefficient of Ed: 12

. demand elasticity A measure of the responsiveness of consumers to changes in the price of a good. • coefficient of demand elasticity (E) The percentage change in quantity demanded, divided by the percentage change in price. E is always a negative number because P and Q are inversely related. 13

• The elasticity of demand is the ratio of the percentage change in quantity demanded to the percentage change in the price of the good. p 83 • Over a specified price range, demand is said to be either elastic, unitary elastic, or inelastic according to whether the absolute value of the elasticity coefficient is greater than, equal to, or less than one, respectively. 14

• elastic Segment of demand for which E > 1. • inelastic Segment of demand for which E< 1. • unitary elastic Segment of demand for which E = 1. 15

• In the case of linear demand, moving down the demand curve causes the absolute value of the demand elasticity to get smaller. 16

华东师范大学 2000年西方经济学[金融学/国贸] 考研试题 • 7. 民航机票经常价格打折说明飞机旅行 需求（ ） A. 富有价格弹性 B. 单位弹性 C. 价格 弹性不足 D. 缺乏收入弹性 17

上海财经大学 1998年西方经济学 试题 • 二．选择题：请在标准答题纸上作单项 选择（每小题 1. 5分，共 45分） • 3． 某商品价格从10元下降到 9元，需 求量从70增至 75，该商品需求 A. 缺乏弹性 B. 富有弹性 • C. 单位弹性 D. 弹性不能确定 18

• 3. A TR 1=10*70=700, TR 2=9*75=675， 总收益因为价格的下降而下降，所以 Ed<1 to韣吠噼 4 19

上海财经大学 1999年西方经济学 考研试题 • 3 ． 直线型需求曲线的斜率不变，因此其价 格弹性也不变，这种说法 A. 一定正确 B. 一定不正确 , C. 可能不正确 D. 无法判断是正确不正确 • 四．简答题（每小题 6 分，共 30 分） • 4 ． 设汽油的需求价格弹性为－ 0. 15 ，其 价格现为每加仑 1. 2 美元，试问汽油价格上涨 多少才能使其消费量减少 10% ？ 20

• 3. C 考察特殊的直线型需求曲线，包括 水平，竖直和交X和Y轴等三种 ? • n? ? 4. 80% !敒(ko 21

上海财经大学 2000年西方经济学 考研试题 ? • 20. 如果需求曲线是一直线（线性函数） ，那么这一商品需求的价格弹性 • A. 等于 1 B. 是一常数 C. 随需求量增大而增大 • D. 随需求量增大而减少 22

• 15. 当某商品的价格从 5 元降至 4 元时， 该商品需求量增加了 100 单位，则需求 [0 X瓩佨F*C A. 缺乏弹性 B. 富有弹性 唀 * 禕'q C. 单位弹性 D. 不能确 定 23

• 10. D 5. D 根据Ed的公式，Q未知，所以不能确定 24

Relationship between price elasticity and sales revenue • Sales revenue of a firm is the revenue the firm gets from selling its products, i. e. • When P , then Q So is revenue or ? 25

• total revenue (TR) The total amount paid to producers for a good or service (TR = R× Q). • price effect The effect on total revenue of changing price, holding output constant. p 85 • quantity effect The effect on total revenue of changing output, holding price constant. 26

For product with inelastic demand curve • P Profit is represented by the shaded area P 1 A P 2 • A price rise causes an increase in revenue B • A price fall causes a fall in revenue. O Q 1 Q 27

• If demand is elastic for a given change in price, an increase in price causes total revenue to fall. A decrease in price causes total revenue to rise if demand is elastic over the price range. • If demand is inelastic for a given price change, an increase in price causes total revenue to rise, while a decrease in price causes total revenue to fall. • Case: changing price at borderline music emporium p 86 28

• 华东师范大学 98年西方经济学[金融学/国贸] 考研试题 • 四．简析需求弹性与总收益的关系。（10分） • 华东师范大学 2001年西方经济学考研试题 • 二．简述题（每个 8分，共 40分） 1．需求价格弹性的大小与企业的销售收入有 什么关系？ 29

• 上海财经大学 2000年西方经济学考研试 题 <璊

• 1. T Ed>1时，降价引起的需求量的增加 率大于价格的下降率，所以降价使总收 益增加 寡人擌Jb? 31

• 如果某种商品的需求价格弹性是-2，要增 加收入，（ ） • A. 必须降价 B. 必须提价 • C. 保持价格不变 • D. 在提价同时，增加推销开支 32

• 15. 设 某商品价格从7元降至 5元，需要 量从8单 位增至 10单 位后，该 商品卖 者 的总 收益 。 A. 增加 B. 减少 C. 不变 D. 无法确定 33

Factors affecting Demand elasticity • Several factors affect the own-price elasticity of demand. • The most important of these is the availability of close substitutes. The better and more numerous the substitutes for a good, the more elastic the demand for the good. • Demand elasticity is directly related to the percentage of the consumers’s budgets spent on the good. • Also, the longer the time period that consumers have to adjust to price changes, the more responsive they will be, and the more elastic is demand. 34

上海财经大学西方经济学 2002年 试题 • 判断题（每个 2分，共计 20分） 輋翠 # |? 1，通常生活必需品的需求价格弹性的 绝对值比奢侈品的需求价格弹性的绝对 值要小。 : 掕 28 F? 35

• T 钻石可以不买，但是水却是不能不买， 最多只是少买一点。 鯜 4? ? 鹘 36

• 上海财经大学 2004年攻读硕士研究生入 学考试试题 • 2. 需求曲线的需求行为的调整时间越长， 需求就越具有弹性。 • t 37

暨南大学 2004年西方经济学考研试题 • 二．判断正误，并简单说明理由（ 5× 4’） • 1．某种物品越易被替代，其需求越缺乏 弹性 • f 38

Calculating Demand elasticity • Demand elasticities are calculated either for intervals along the demand curve or at points on the demand curve. 39

• arc elasticity The coefficient of demand elasticity calculated over an interval of a demand curve. • point elasticity A measurement of demand elasticity calculated at a point on the demand curve rather than over an interval. 40

• The arc elasticity formula is used to calculate elasticity along an arc (or interval) of demand. • The arc elasticity formula uses the average or midpoint values of price and quantity, rather than the initial values, for the purpose of computing percentage changes. 41

Measuring the elasticity Arc elasticity: the elasticity between two points on the demand curve. Point elasticity: the elasticity of a specific point on the demand curve. 42

Point elasticity of liner demand curve P A F C B O G Q 43

• 上海财经大学 2003年西方经济学考研试 题? 13. 假定需求函数为Q=10 2 P (Q：需 求，P：价格)，则在P=1处需求弹性系 数是 A. 0. 25 B. 0. 5 C. 1 D. 1. 25 鍱m 44

• The point elasticity of demand for a curvilinear demand is computed by constructing the tangent line to the curve at the point of measure. Extend the tangent line until it intersects the price axis. Compute the point elasticity as for a linear demand, using the price intercept of the tangent line as the value of a. 45

Point elasticity of non-liner demand curve P A F O C B G Q Question: is there a kind of demand curve that the Ed of each point on the curve is constant? 46

Types of Ed Perfect inelastic（ed=0） Perfect elastic（ed=+∞ ） Price elastic （ed>1） Price inelastic（0

Classification of demand elasticity P ed=0 （P, Q） ed=1 O ed<1 ed= +∞ ed>1 Q 48

Elasticity varies along a demand curve • When elasticities are compared along a particular demand curve, the absolute value of demand elasticity generally varies directly with price: demand is more elastic at higher prices and less elastic at lower prices. • An exception to this rule is the special demand curve Q = a. Pb, which has a constant elasticity equal to the value of b throughout its entire range of prices. 49

上海财经大学 2002年硕士研究生入学考试西方 经济学 %寝縌 • 四，证明题（每个 10分，共计 20分） % 薚鬍? 1，在微观经济学中给定一一般的线形 需求函数P=f（Q） （Q：需求量，P： 价格）请用代数方法证明该函数任意两 点上的需求函数弹性不等。 Qx 50

• 假设（Q 1，P 1）和（Q 2，P 2）为不同两 点。由于为线性函数，所以 为定值，即 斜率。根据公式 ， 。而从数学的角度看 为需求曲线上一点与原点组成曲线的斜 率，而这种曲线的斜率是不可能一样的。 所以需求弹性不可能够相等。 51

other elasticities • Two other important elasticities are income elasticity, which measures the responsiveness of quantity purchased to changes in income, and cross-price elasticity, which measures the responsiveness of quantity purchased to changes in the price of related goods (substitutes or complements). 52

• income elasticity (EM) A measure of the responsiveness of quantity demanded to changes in income, holding all other variables in the generalized demand function constant. • cross-price elasticity (EXY) A measure of the responsiveness of quantity demanded to changes in the price of a related good, when all the other variables in the generalized demand function remain constant. 53

• Both of these elasticities are measured using the arc (averaging) method to compute percentage changes. • In the case of income elasticity, the elasticity measure is positive if the good is normal, negative if the good is inferior. • In the case of cross-price elasticity, the elasticity measure is positive if the two goods are substitutes, negative if they are complements. 54

• 上海财经大学 1998年西方经济学考研试 题 =N|脥F(Hゼ 榁 ? 3眘? 一判断题

• F 收入弹性表示商品需求量对收入变动反 映程度，考察需求与需求量的区别 I{? ? 56

98上海财大 • 18. 当两种商品中一种商品的价格发 生变 化时 ， 这 两种商品的需求量同时 增加或减少，这 两种 商品的交叉弹 性系数为 。 A. 正数 B. 负 数 C. 0 D. 1 • 20. 消费 者收入下降但对 某商品的需求量却增 加，该 商品为 。 A. 低档商品 B. 替代商品 C．高档商品 D. 互补 商品 57

• 上海财经大学 2001年经济学考题 一、判断题（1*10＝ 10） • 1、如果一种商品的收入弹性为负，这 种商品的需求曲线一定有一负的斜率。 • . T咄綬? 58

• F 收入弹性为负为低档品，低档品又可 以具体分为劣质品和吉芬商品，劣质品 的需求曲线的斜率为正，而吉芬商品为 负 59

Marginal revenue is defined as The addition to total revenue attributable to selling one additional unit of output. 60

• Marginal revenue declines as output increases and is less than price for every quantity except the first unit, in which case marginal revenue equals price. • inframarginal units Units of output that could have been sold at a higher price had a firm not lowered its price to sell the marginal unit. 61

Price Elasticity, marginal revenue and total revenue D Elastic demand B P* O MR Elastic demand O Q* D’(AR ) Quantity demanded Inelastic demand Quantity demanded 62

• When MR is positive, TR is rising as price falls and quantity demanded increases. When MR is negative, TR is falling. When MR is zero, TR is neither rising nor falling: it is at its maximum value. 63

• In the case of linear demand, where demand is expressed as P = a - b. Q, marginal revenue is also linear and is expressed as MR = a - 2 b. Q. In other words, marginal revenue is linear, intersects the price axis at the same point as demand, and is twice as steep as demand. 64