Introduction to Economics PDF

INTRODUCTION TO ECONOMICS 4 Ekim 2024 Cuma 19:31 Part1 The Scope and Method of Economy WHY STUDY ECONOMICS? There are three reason to learn about economics; 1.TO LEARN A WAY OF THINKING ->Opportunity Cost= The best alternative that we forgo, or give up, when we make a choice or a decision. Opp...

INTRODUCTION TO ECONOMICS 4 Ekim 2024 Cuma 19:31 Part1 The Scope and Method of Economy WHY STUDY ECONOMICS? There are three reason to learn about economics; 1.TO LEARN A WAY OF THINKING ->Opportunity Cost= The best alternative that we forgo, or give up, when we make a choice or a decision. Opportunity costs arise(ortaya çıkmak) because resources are scarce(limited). ->Marginalism=The process of analyzing the additional(ekstra) or incremental(artan) costs or benefits arising from a choice or decision. ->Efficient Market=A market in which profit( kar) opportunities are eliminated almost instantaneously(anında). The study of economics teaches us a way of thinking and helps us make decisions. 2.TO UNDERSTAND SOCIETY Past and present economic decisions have an enormous(devasa) influence on the character of life in a society. Industrial Revolution: Increases in the productivity of agriculture(tarım), new manufacturing technologies, and development of more efficient forms of transportation led to a massive movement of the British population from the countryside to the city. ->>The discipline of economics began to take shape during this period. Adam Smith’s Wealth of Nations appeared in 1776. David Ricardo, Karl Marx, Thomas Malthus and others followed Adam Smith. Societal changes are often driven by economics. The study of economics is an essential part of the study of society. 3.TO BE INFORMED CITIZEN Economics is also essential in understanding a range of other everyday government decisions at the local and federal levels. To be an informed citizen requires a basic understanding of economics. THE SCOPE OF ECONOMICS There are two major divisions of eco nomics: microeconomics and macroeconomics. ->Microeconomics= The branch of economics that examines individual industries and the behavior of individual decision-making units—that is, firms and households ->Macroekonomics=Looks at the economy as a whole, examines the factors that determine national output, or national product. Macroeconomics deals with aggregate employment and unemployment: how many jobs exist in the economy as a whole and how many people who are willing to work are not able to find work. Microeconomics is concerned with household income; macroeconomics deals with national income. To summarize: Microeconomics looks at the individual unit—the household, the firm, the industry. It sees and examines the “trees.” Macroeconomics looks at the whole, the aggregate. It sees and analyzes the “forest". ECONOMICS Sayfa 1 THE DIVERSE FIELDS OF ECONOMICS Individual economists focus their research and study in many different areas. The subfields of economics are listed : 1.Behavioral Economics:Do people save more money when they are automatically enrolled in savings programs, compared to when they have to sign up themselves? Is there anything else you’d like to simplify or clarify? 2.Comparative economic systems:How does the resource allocation process differ in market versus command and control systems? 3.Econometrics:What inferences can we make based on conditional moment inequalities? 4.Economic development:Does increasing employment opportunities for girls in developing nations increase their educational achievement? 5.Economic history:How did the growth of railroads and improvement in transportation more generally change the U.S. banking systems in the nineteenth century? 6.Environmental economics:What effect would a tax on carbon have on emissions? Is a tax better or worse than rules? 7.Finance:Is high frequency trading socially beneficial? 8.Health economics:Do co-pays by patients change the choice and use of medicines by insured patients? 9.The history of economic thought:How did aristotle think about just prices? 10.Industrial organization:How do we explain price wars in the airline industry 11.International economics:What are the benefits and costs of free trade? Does concern about the environment change our views of free trade? 12.Labor economics:Will increasing the minimum wage decrease employment opportunities? 13.Law and economics:Does the current U.S. patent law increase or decrease the rate of innovation? 14.Public economics: Why is corruption more widespread in some countries than in others? 15.Urban and regional economics:Do enterprise zones improve employment opportunities in central cities? THE METHOD OF ECONOMICS Economics asks and attempts to answer two kinds of questions: positive and normative. Positive economics: Seeks to understand behavior and the operation of systems without making judgments about whether the outcomes are good or bad. It describes what exists and how it works. Normative economics: Analyzes outcomes of economic behavior with judgement, evaluates them as good or bad, and may prescribe courses of action. Also called policy economics. THEORIES AND MODELS Model:is a formal statement of a theory. It is usually a mathematical statement of a presumed relationship between two or more variables. Variable:A measure that can change from time to time or from observation to observation. Ockham’s razor: The principle that irrelevant detail should be cut away. Ceteris paribus, or all else equal: A device used to analyze the relationship between two variables while the ECONOMICS Sayfa 2 Ceteris paribus, or all else equal: A device used to analyze the relationship between two variables while the values of other variables are held unchanged empirical economics :The collection and use of data to test economic theories. ECONOMIC POLICY Economic theory helps us understand how the world works, but the formulation of economic policy requires a second step. We must have objectives. Four criteria are frequently applied in judging economic outcomes: 1.Efficiency: Produces what people want at the least possible cost-> verimlilik 2.Equity: Fairness. Implies a more equal distri bution of income and wealth. 3.Economic growth: An increase in the total output of an economy. If output grows faster than the population, output per person rises and standards of living increase. 4.Stability: A condition in which national output is growing steadily, with low inflation and full employment of resources. Part2 The Economic Problem: Scarcity and Choice Factors of production (or factors): The inputs into the process of production. Another term for resources. The three key factors of production are land, labor, and capital. Capital: Things that are pro duced and then used in the production of other goods and services. Production: The process that transforms scarce resources into useful goods and services. Inputs or resources :Anything provided by nature or previous generations that can be used directly or indirectly to satisfy human wants. Outputs: Goods and services of value to households. SCARCITY, CHOICE AND OPPURTINITY COST Scarcity: Fundamental economic problem of having limited resources to meet unlimited wants and needs. Choice:Because of scarcity, you must make choices about how to use your limited resources. These choices involve trade-offs, where choosing one option means giving up another. Oppurtinity Cost:The best alternative that we give up, or forgo(give up), when we make a choice or decision. Ricardo's theory of comparative advantage: Specialization(uzmanlık) and free trade will benefit all trading parties, even those that may be “absolutely” more efficient producers. Absolute advantage: A producer has an absolute advantage over another in the production of a good or service if he or she can produce that product using fewer resources (a lower absolute cost per unit). Comparative advantage: A producer has a compara tive advantage over another in the production of a good or service if he or she can produce that product at a lower opportunity cost. Weighing Present and expected Future Costs and Benefits: Weighing benefits available today against benefits available tomorrow, often referred to as opportunity cost. (Geleceği düşünerek hareket etmek, para biriktirmek, ertesi güne yemek ayırmak falan kısaca idareli kulanım gbi bir şey.) Capital goods and Consumer goods : A society trades present for expected future benefits when it devotes a portion of its resources to research and development or to invest ment in capital. (bugün eldeki faydaları gelecekte fayda elde edebilmek için takas etmek trade etmek) *Building capital means trading present benefits for future ones. -Consumer Goods: Goods produced for present consumption. *Capital does not need to be tangible. When you spend time and resources developing skills or getting an education, you are investing in human capital(sermaye). *The process of using resources to produce new capital is called investment. THE PRODUCTION POSSIBILITY FRONTIER (PPF) A graph that shows all the combinations of goods and services that can be produced if all of a society’s ECONOMICS Sayfa 3 A graph that shows all the combinations of goods and services that can be produced if all of a society’s resources are used efficiently. All points below and to the left of the curve (the shaded area) represent combinations of capital and consumer goods that are possible for the society given the resources available and existing technology. Points above and to the right of the curve, such as point G, represent combinations that cannot currently be realized. Production efficiency Negative Slope and Opportunity Cost The slope(eğim) of the ppf is negative. Can produce more capital goods only by reducing production of consumer goods. The opportunity cost of the additional capital is the forgone production of consumer goods. marginal rate of transformation (MrT): The slope of the production possibility frontier (ppf). The Law of increasing Opportunity Cost : As a society spends a larger portion of its resources on one good versus all others, getting more production of that good often becomes increasingly hard. - belli bir alana odaklanıp ilerledikçe diğer alanları geliştirmek daha zor ve maliyetli olur gibi bir şey. Unemployment : When there is unemployment of labor and capital, we are not producing all that we can. Inefficiency: Waste and mismanagement are the results of a firm operating below its potential. ->Sometimes inefficiency results from mismanagement of the economy instead of misman agement of individual private firms. The efficient Mix of Output: To be efficient, an economy must produce what people want. In addition to operating on the ppf, the economy must be operating at the right point on the ppf. This is referred to as output efficiency, in contrast to production efficiency. EX. If everyone in the society were a vegetarian and there were no trade, resources spent on producing beef would be wasted. Economic growth :An increase in the total output of an econ omy. Growth occurs when a society acquires new resources or when it learns to produce more using existing resources. Sources of growth and the Dilemma of Poor Countries: Economic growth arises from many sources. The two most important over the years have been the accumulation of capital and technological advances. For poor countries, capital is essantial; build the communication networks and transportation systems necessary to develop industries that function efficiently. - Technological advances come from research and develop ment that use resources; thus, they too must be paid for. Kısaca economic growth: 1.more resources 2.better technology Capital goods and growth in Poor and rich Countries: Rich countries find it easier than poor countries to ECONOMICS Sayfa 4 Capital goods and growth in Poor and rich Countries: Rich countries find it easier than poor countries to devote resources to the production of capital, and the more resources that flow into capital production, the faster the rate of economic growth. Thus, the gap between poor and rich countries has grown over time. THE ECONOMIC PROBLEM There are lots of coordination and cooperation in a modern industrial society. Yet something seems to drive economic systems toward producing the goods and services that people want. Recall the three basic questions facing all economic systems: 1- What gets produced? 2- How is it produced? 3- Who gets it? ECONOMIC SYSTEM AND THE ROLE OF GOVERMENT COMMAND ECONOMY (PLANLI EKONOMİ): The government, either directly or indirectly, sets output targets, incomes, and prices. Just like Soviet Union or China LAISSEZ-FAIRE ECONOMY: THE FREE MARKET: literally from the French: “allow [them] to do.” An economy in which individual people and firms pursue their own self- interest without any government direction or regulation. CONSUMER SOVEREIGNTY (TÜKETİCİ EGEMENLİĞİ): The idea that consumers ultimately dictate what will be produced (or not produced) by choosing what to purchase (and what not to purchase). INDIVIDUAL PRODUCTION DESICSIONS: FREE ENTERPRISE(SERBEST GİRİŞİM): -Proponents of free market systems argue that the use of markets leads to more efficient production and better response to diverse and changing consumer preferences. -If a producer is inefficient, competitors will come along, fight for the business, and eventually take it away. -Thus, in a free market economy, competition forces producers to use efficient techniques of production and to produce goods that consumers want. DISTRIBUTION OF OUTPUT: In a free market, output distribution is based on wages and individual choices. Higher education or training can increase income. PRICE THEORY: In a free market, prices coordinate economic activity. They reflect what society is willing to pay and determine production costs and wages. Individuals make decisions based on self-interest without government interference. This is why microeconomics is often called price theory. MIXED SYSTEM, MARKET AND GOVERMENTS: In reality, all economies are mixed, combining elements of both command and laissez-faire systems. Even in market economies like the U.S., the government plays a significant role through spending, employment, ECONOMICS Sayfa 5 market economies like the U.S., the government plays a significant role through spending, employment, regulation, and income redistribution. **The ongoing debate in economics is about balancing the benefits of free markets with the need for government intervention to address market failures. PART 3 DEMAND, SUPPLY AND MARKET EQUILIBRIUM 1.Firms and Households: The Basic Decision Making Units: There are two fundamental decision- making units: firms; the primary producing units in an economy households;the consuming units in an economy. FIRMS: An organization that transforms resources (inputs) into products (outputs). - Firms are the primary producing units in a market economy. -All firms exist to transform resources into goods(ürün) and services that people want. -Most firms exist to make a profit for their owners, but some do not. Example: Columbia University it takes some money but does not look out for any profit. It exist to provide highest quality education. -Most firms engage in production because they can sell their product for more than it costs to produce it.(kâr elde etme çabası). Firms makes desicions to maximize the profits. we will assume that they act to minimize those losses. ENTREPRENEUR (GİRİŞİMCİ):Someone who organizes, manages, and assumes the risks of a firm. -They also taking a new idea or a new product and turning it into a successful business. HOUSEHOLDS: The consuming (tüketici) units in an economy. -Household decisions are based on individual tastes and preferences. -All households have some things in common ; limited incomes and all must pay for the goods and services. -They may have some control over their incomes by working more hours or fewer hours than usual. -They are also constrained (kısıtlamak) by the availability of jobs, current wages, their own abilities and inherited wealth. INPUT MARKETS AND OUTPUT MARKETS: THE CIRCULAR FLOW PRODUCT OR OUTOUT MARKET: The markets in which goods and services are exchanged. -Real goods and services flow from firms to households through output markets. Labor services flow from households to firms through input markets. Payment (most often in money form) for goods and services flows in the opposite direction. INPUT OR FACTOR MARKET: The markets in which the resources used to produce goods and services are exchanged. LABOR MARKET: Households provide labor to firms through input markets, and firms pay households for their labor. CAPITAL MARKET:The input/ factor market in which households supply their savings, for interest or for claims to future profits, to firms that demand funds to buy capital goods. *Households may also loan their accumulated or inherited savings to firms for interest or exchange those savings for claims to future profits, as when a house hold buys shares of stock in a corporation(şirket). Same shit. LAND MARKET: The input/ factor market in which house holds supply land or other real property in exchange for rent. *Households may also supply land or other real property in exchange for rent. Same shit again. FACTORS OF PRODUCTIONS: Inputs into the production process. *Land *Labor *Capital are the three key factors of production. -Firms determine the quantities of outputs produced and the types and quantities of inputs demanded. Households determine the types and quantities of products demanded and the quantities and types of inputs ECONOMICS Sayfa 6 Households determine the types and quantities of products demanded and the quantities and types of inputs supplied. Supply = arz Demand = talep Output = Çıktı Input = Girdi DEMAND IN PRODUCT/ OUTPUT MARKETS Decision about what to buy and how much of it to buy ultimately depends on six factors: -Price of the products -Income available to the houshold. -Household’s amount of accumulated(birikmiş) wealth. (correcting large number of things.) -Prices of other products available to the household. -Tates and preferences. -Household’s expectations about future income, wealth, and prices. Quantity Demanded (Talep edilen miktar) : The amount (number of units) of a product that a household would buy in a given period if it could buy all it wanted at the current market price. Change in Quantity Demanded: This is a movement along the demand curve due to a change in the price of the good or service. Change in Demand: This is a shift of the entire demand curve caused by factors other than the price, such as changes in income, preferences or the prices of related goods. ->Changes in the price of a product affect the quantity demanded. PRICE AND QUANTITY DEMANDED: LAW OF DEMAND Demand Schedule: Shows how much of a given product a household would be willing to buy at different prices for a given time period. DEMAND CURVE: A graph illustrating how much of a given product a household would be willing to buy at different prices. Fiyat artarsa alış/talep azalır. Demand Curves Slope Downward : There is a negative, or inverse, relationship between quantity demanded and price. -When price rises, quantity demanded falls ECONOMICS Sayfa 7  Demand Curves Slope Downward : There is a negative, or inverse, relationship between quantity demanded and price. -When price rises, quantity demanded falls -When price falls, quantity demanded rises. -Thus, demand curves always slope downward. - This negative relationship between price and quantity demanded is often referred to as the law of demand Economists use the concept of utility(fayda) to explain the slope of the demand curve. We consume goods and services because they give us utility or satisfaction. But sometimes it may not be able to give the satisfaction or utility at the first time for the second time. -> example:The utility you gain from a second ice cream cone is likely to be less than the utility you gained from the first, the third is worth even less, and so on. And this is the law of diminishing marginal utility (azalan marjinal fayda yasası). Other Properties of Demand Curves: 1.They have a neagtive slope 2.They intersect(kesişen) the quantity (X) axis, a result of time limitations and diminishing marginal utility. 3. They intersect the price (Y) axis, a result of limited income and wealth. Other Determinats of Housholds Demand 1.Income and Wealth: household’s income is the sum of all the wages(ücret), salaries, profits, interest payments(faiz ödemesi), rents, and other forms of earnings received by the household in a given period of time. Flow measure: We must specify a time period for it. *If you consume less than your income, you save. Wealth :Total value of what a household owns minus what it owes. -Another word for wealth is net worth. Wealth or net wealth: The total value of what a household owns minus what it owes. It is a stock measure. Normal Good: Goods for which demand goes up when income is higher and for which demand goes down when income is lower.(gelir yükselince talep artıyor, gelir azalınca talep azalıyor.) Inferıor Goods: Goods for which demand tends to fall when income rises. (gelir arttınca talebin arttığı mallar.) PRICES OF OTHER GOODS AND SERVICES The price of any one good can and does affect the demand for other goods. Substitutes: Goods that can serve as replacements for one another; when the price of one increases, demand for the other increases. perfect substitutes: Identical products. complements, complementary goods :Goods that “go together”; a decrease in the price of one results in an increase in demand for the other and vice versa. TASTES AND PREFERENCES: Income, wealth, and prices of goods available are the three factors that determine the combinations of goods and services that a household is able to buy. -Within the constraints of prices and incomes, preference shapes the demand curve. First, they are volatile(change suddenly). Second, tastes are idiosyncratic( having strange unusual habits). EXPECTATIONS: What you decide to buy today certainly depends on today’s prices and your current income ECONOMICS Sayfa 8 EXPECTATIONS: What you decide to buy today certainly depends on today’s prices and your current income and wealth. -You may have expectations about future changes in prices too, and these may affect your decisions today. *It is important to understand that demand depends on more than just current incomes, prices, and tastes. SHIFT OF DEMAND VERSUS MOVEMENT ALONG A DEMAND CURVE -Demand curve shows the relationship between quantity demanded and the price of a good. -If income, tastes, or other prices change, we would have to derive an entirely new relationship between price and quantity. Shift of a Demand Curve Following a Rise in Income : -Creat ing a new relationship between price and quantity demanded of a good and price of that good. -When the price of a good changes, we move along the demand curve for that good. When any other factor that influences demand changes (income, tastes, and so on), the demand curve shifts. Movement Along a Demand Curve: The change in quantity demanded brought about by a change in price. FROM HOUSEHOLD DEMAND TO MARKET DEMAND Market Demand: The sum of all the quantities of a good or service demanded per period by all the households buying in the market for that good or service. SUPPLY IN PRODUCT/ OUTPUT MARKET Firms build factories, hire workers, and buy raw materials because they believe they can sell the products they make for more than it costs to produce them. Profit: The difference between revenues and costs. PRICE AND QUANTITY SUPPLIES: LAW OF SUPPLY: Quantity Supplied: The amount of a particular product that a firm would be willing and able to offer for sale at a particular price during a given time period. Supply Schedule: Shows how much of a product firms will sell at alternative prices. Law of Supply: The positive relationship between price and quantity of a good supplied. An increase in market price will lead to an increase in quantity supplied, and a decrease in market price will lead to a decrease in quantity supplied. Supply Curve: A graph illustrating how much of a product a firm will sell at different prices. ECONOMICS Sayfa 9 Supply Curve: A graph illustrating how much of a product a firm will sell at different prices. Fiyatta artış = maliyette artış Miktar artınca (increase of quantity) -> fiyat artar (increase of price) Other Determinants of Supply 1.The Cost of Production: Cost of production depends on a number of factors, including the available technologies and the prices and quantities of the inputs needed by the firm (labor, land, capital, energy, and so on). Cost of production is also directly affected by the price of the factors of production. Increases in input prices raise costs of pro duction and are likely to reduce supply. 2.The Price of Related Products: A firm’s decision about what quantity of output, or product, to supply depends on: 1. The price of the good or service. 2. The cost of producing the product, which in turn depends on: the price of required inputs (labor, capital, and land), and the technologies that can be used to produce the product. 3. The prices of related products Shift of Supply versus Movement along a Supply Curve: -A supply curve shows the relationship between the quantity of a good or service supplied by a firm and the price that good or service brings in the market. Movement along a Supply Curve: The change in quantity supplied brought about by a change in price. Shift of a supply curve: The change that takes place in a supply curve corresponding to a new relationship between quantity supplied of a good and the price of that good. The shift is brought about by a change in the original conditions. Change in price of a good or service leads to ->change in quantity supplied (movement along a supply curve). Change in costs, input prices, technology, or prices of related goods and services leads to ->change in supply (shift of a supply curve) From Individual Supply to Market Supply Market Supply: The sum of all that is supplied each period by all producers of a single product. When new firms enter an industry, the supply curve shifts to the right. When firms go out of business, or “exit” the market, the supply curve shifts to the left. Deriving Market Supply from individual Firm Supply Curves: Total supply in the marketplace is the sum of all ECONOMICS Sayfa 10 Deriving Market Supply from individual Firm Supply Curves: Total supply in the marketplace is the sum of all the amounts supplied by all the firms selling in the market. It is the sum of all the individual quantities supplied at each price. MARKET EQUILIBRIUM - PİYASA DENGESİ The role of market price as a determinant of both quantity demanded and quantity supplied. The operation of the market, clearly depends on the interaction between suppliers and demanders. One of three conditions prevails in every market: 1-Excess Demand 2-Excess Supply 3-Equilibrium EQUILIBRIUM: When quantity supplied and quantity demanded are equal. At equilibrium, there is no tendency for price to change EXCESS DEMAND/ A SHORTAGE- TALEP FAZLASI: When quantity demanded exceeds quantity supplied at the current price. A supply curve and demand curve on the same graph: When excess demand exists, there is a tendency for price to rise. When quantity demanded equals quantity supplied, excess demand is eliminated and the market is in equilibrium. -A situation in which there is no natural tendency for further adjustment. Graphically, the point of equilibrium is the point at which the supply curve and the demand curve intersect. -When excess demand exists, prices rise. -When the price in a market rises, quantity demanded falls and quantity supplied rises until an equilibrium is reached at which quantity demanded and quantity supplied are equal. EXCESS SUPPLY/ SURPLUS- ARZ FAZLASI: When quantity supplied exceeds quantity demanded at the current price. ->When quantity supplied exceeds quantity demanded at the current price, the price tends to fall. ->When price falls, quantity supplied is likely to decrease and quantity demanded is likely to increase until an equilibrium price is reached where quantity supplied and quantity demanded are equal. ECONOMICS Sayfa 11 CHANGES IN EQUILIBRUIM: When supply and demand curves shift, the equilibrium price and quantity change. Piyasayı eşitlemek için fiyat artışı: DEMAND AND SUPPLY IN PRODUCT MARKETS: Some important points to remember about the mechanics of supply and demand in product markets: 1. A demand curve shows how much of a product a household would buy if it could buy all it wanted at the given price. A supply curve shows how much of a product a firm would supply if it could sell all it wanted at the given price. 2. Quantity demanded and quantity supplied are always per time period—that is, per day, per month, or per year. 3. The demand for a good is determined by price, household income and wealth, prices of other goods and services, tastes and preferences, and expectations. 4. The supply of a good is determined by price, costs of production, and prices of related products. Costs of production are determined by available technologies of production and input prices. 5. When the price of a good changes, the quantity of that good demanded or supplied changes—that is, a movement occurs along the curve. When any other factor that affects supply or demand changes, the curve shifts, or changes position. 6. Market equilibrium exists only when quantity supplied equals quantity demanded at the current price. Markets and the Allocation of Resources -Piyasalar ve kaynaklaarın tahsisi PART 5 ELASTICITY ECONOMICS Sayfa 12 Economists commonly measure market responsiveness using the concept of elasticity. Elasticity is a general concept used to quantify the response in one variable when another variable changes. PRICE ELASTICITY OF DEMAND: measures the responsive ness of quantity demanded to changes in price. Slope and Elasticity: The slope of a demand curve may in a rough way reveal the responsiveness of the quantity demanded to price changes, but slope can be quite misleading TYPES OF ELASTICITY: 1.Perfectly Inelastic Demand: Demand in which quantity demanded does not respond at all to a change in price. 2.Perfectly Elastic Demand: Demand in which quantity drops to zero at the slightest increase in price. Elastic Demand: A demand relationship in which the per centage change in quantity demanded is larger than the percentage change in price in absolute value (a demand elas ticity with an absolute value greater than 1) Inelastic Demand: Demand that responds somewhat, but not a great deal, to changes in price. Inelastic demand always has a numerical value between zero and 1. Unitary Elasticity: A demand relationship in which the percentage change in quantity of a product demanded is the same as the percentage change in price in absolute value (a demand elasticity with an absolute value of 1). CALCULATING ELASTICITY In many areas, knowing the demand or supply elasticity will be key to knowing whether a govern ment economic policy is wise or a business move will improve profits. CALCULATING PERCENTAGE CHANGES talep edilen miktarda değişiklik: To calculate percentage change in quantity demanded using the initial value as the base, the following formula is used: We can calculate the percentage change in price in a similar way with this formula: ECONOMICS Sayfa 13 Elasticity Is a Ratio of Percentages:? Once the changes in quantity demanded and price have been converted to percentages, calculating elasticity is a matter of simple division. Recall the formal definition of elasticity: -If demand is elastic, the ratio of percentage change in quantity demanded to percentage change in price will have an absolute value greater than 1. - If demand is inelastic, the ratio will have an absolute value between 0 and 1. - If the two percentages are equal, so that a given percentage change in price causes an equal percentage change in quantity demanded, elasticity is equal to an absolute value of 1.0; this is unitary elasticity. THE MIDPOINT FORMULA: A more precise way of calculating percentages using the value halfway between P1 and P2 for the base in calculating the percentage change in price and the value halfway between Q1 and Q2 as the base for calculat ing the percentage change in quantity demanded. POINT ELASTICITY: A measure of elasticity that uses the slope measurement. -We have defined elasticity as the percentage change in quantity demanded divided by the percentage change in price. We can write this as: -where Δ denotes a small change and Q1 and P1 refer to the original price and quantity demanded. This can be rearranged and written as: Notice that ∆Q/ ∆P is the reciprocal of the slope. Elasticity Changes along a Straight-Line Demand Curve: ECONOMICS Sayfa 14 ELASTICITY AND TOTAL REVENUE - ESNEKLİK VE TOPLAM GELİR price artarsa talep miktarı düşer, price düşerse talep miktarı artar If the percentage decrease in quantity demanded is smaller than the percentage increase in price, total revenue will rise; If, however, the percentage decline in quantity demanded following a price increase is larger than the percentage increase in price, total revenue will fall; The opposite is true for a price cut. When demand is elastic, a cut in price increases total revenue: When demand is inelastic, a cut in price reduces total revenue: ECONOMICS Sayfa 15 THE DETERMINANTS OF DEMAND ELASTICITY The most important factor affecting demand elasticity is the availability of substitutes. Substitutes: ikame mallar: İkame malların varlığı, talep esnekliğini etkileyen önemli bir faktördür. - An increase in price will lead to a rapid decline in the quantity demand. Other Important Elasticity: Income Elasticity of Demand: A measure of the responsive ness of quantity demanded to changes in income. Formula; Cross-Pride Elasticity of Demand: A measure of the response of the quantity of one good demanded to a change in the price of another good. Elasticity of Supply: A measure of the response of quantity of a good supplied to a change in price of that good. likely to be positive in output markets. Elasticity of Labor Supply: A measure of the response of la bor supplied to a change in the price of labor. WHAT HAPPEN WHEN WE RISE TAXES: USING ELASTICITY Excise Tax: A per unit tax on a specific good. ECONOMICS Sayfa 16