Principles of Microeconomics Eleventh Edition Chapter 4 Elasticity PDF

Principles of Microeconomics SAYRE // MORRIS // GHAYAD Eleventh Edition CHAPTER 4 Elasticity Prepared by Ifeanyi Uzoka, Sheridan College © 2024 McGraw Hill ...

Principles of Microeconomics SAYRE // MORRIS // GHAYAD Eleventh Edition CHAPTER 4 Elasticity Prepared by Ifeanyi Uzoka, Sheridan College © 2024 McGraw Hill  CHAPTER 4 Elasticity Learning Objectives: 1. Explain price elasticity of demand and its determinants. 2. Calculate price elasticity and explain the coefficient of elasticity. 3. Describe the relationship between the slope of a demand curve and elasticity, and how this affects the total revenue of the producer. © 2024 McGraw Hill 4-2  CHAPTER 4 Elasticity Learning Objectives: 4. Use real-world examples to demonstrate that the concept of elasticity is a powerful tool 5. Describe the meaning and significance of elasticity of supply, income elasticity, and cross-elasticity of demand © 2024 McGraw Hill 4-3  LO1: Price Elasticity of Demand © 2024 McGraw Hill 2-4  Price Elasticity of Demand – Price elasticity of demand: It is a measure of how much the quantity demanded of a product changes as a result of a change in its price. εp = %Δ quantity demanded %Δ price – Coefficient of elasticity denoted by ‘epsilon’ ε – It is an absolute number; the sign is ignored © 2024 McGraw Hill 4-7  Price Elasticity of Demand Inelastic Demand – Quantity demanded is not very responsive to a change in price – Coefficient of elasticity is less than 1 Elastic Demand – Quantity demanded is quite responsive to a change in price – Coefficient of elasticity is greater than 1 © 2024 McGraw Hill 4-7  Price Elasticity of Demand Unitary Demand – Occurs when the percentage change in quantity demanded is exactly equal to the percentage change in price – Coefficient of elasticity is equal to 1 © 2024 McGraw Hill 4-8  Price Elasticity of Demand Elasticity Coefficient – A number that measures the responsiveness of quantity demanded to a change in price If coefficient Demand is: is: Greater than 1 Elastic Less than 1 Inelastic Equal to 1 Unitary © 2024 McGraw Hill 4-6  Determinants of Price Elasticity The determinants of price elasticity are: – the number of available substitutes – the percentage of household income spent on the product – the time period involved © 2024 McGraw Hill 4-39  Examples of Elasticities Table 4.2 Examples of Products with Different Elasticities of Demand Elastic Demands Inelastic Demands Fresh Tomatoes (4.60) Household Electricity (0.13) Movies (3.41) Eggs (0.32) Lamb (2.65) Car Repairs (0.36) Restaurant Meals (1.63) Food (0.58) China And Tableware (1.54) Household Appliances (0.63) Automobiles (1.14) Tobacco (0.86) © 2024 McGraw Hill 4-38 Test Your Understanding Imagine that elasticity coefficients were recently measured in Canada over a period of one year for the following products. Indicate whether you think such a measurement would be elastic (>1) or inelastic (1) or inelastic (1 and price falls b) ε 1 and price falls TR rises b) ε 1 and price falls TR rises b) ε