ELASTICITY (KINH tế VI mô SLIDE)

ELASTICITY Contents Elasticity of demand Elasticity of supply  *Price elasticity of demand (ED ) P Elasticity of demand *Income elasticity of demand (ED ) I *Cross elasticity of demand (ED )   Py Elasticity of demand Price elasticity of demand (E D) P - The percentage changed in quantity demanded resulting from 1% change in price E D P % ∆Q = % ∆P Elasticity of demand Price elasticity of demand (EPD) Point elasticity E D P % ∆Q ∆Q ∆P ∆Q P P = = : = = Q '( P ) % ∆P Q P ∆P Q Q E.g: Demand curve: P = 18 – 2Q and point A (P=6, Q=6) What is price elasticity of demand at point A Elasticity of demand Price elasticity of demand (EPD) Arc elasticity E PDAB Q1 − Q2 Q1 + Q2 = P1 − P2 P1 + P2 Eg: At price P=7.000VND, consumer buys 10kilos of pork/ month At price P= 6.000 VND, consumer buys 15kilos/ month What is price elasticity of demand? Elasticity of demand Conclusion: Price elasticity of demand always: - Unit – free and negative value - Usually use absolute value Elasticity of demand Price elasticity of demand (E D) P /E/ < 1: Inelastic demand • • P - steep demand curve - large change in price, small change in quantity demanded - Consumers are not very sensitive to the change in price - the goods is hard to replace or necessity Q Elasticity of demand Price elasticity of demand (E D) P • • /E/ > 1: Elastic demand, - flat demand curve - small change in price, large change in quantity demanded P - Consumers are very sensitive to the change in price - the goods is easy to replace Q Elasticity of demand Price elasticity of demand (E D) P • • /E/ = 1: Unitary-elastic demand - slope down demand curve - %change in price equal to % change in quantity demanded Elasticity of demand Price elasticity of demand (E D) P • • /E/ = 0: Perfectly Inelastic demand - Demand curve is parallel to the vertical axis P - Change in price doesn’t affect on quantity demanded - Consumers are not sensitive to the change in price - The good is irreplaceable Q Elasticity of demand PPPPP PPPPPPPPPP PP PPPPnP PP P P P • /P/ = ∞: PPPPPPPPP PPPPPPP PPPPnP • P PPPPnP PPPPP PP PPPPPPPP PP PPP PPPPPPnPPP PPPP P PPPngP Pn PPPPP PPPPPPP PPPPPPP Pn PPPnPPPP PPPPnPPP P PPnPPPPPP PPP PPPPPPPPP PPnPPPPPP PP PPP PPPngP Pn PPPPP P PPP gPPP PP Pn PPP PPPPPPP PPPPPPPPPPn PPPPPP Elasticity of demand Price elasticity of demand (E D) P • Factors effecting on E D P - The availability of substitutes goods - The characteristic of the goods - The time needed to find out the substitutes goods - The ratio of the spending in total income Elasticity of demand Price elasticity of demand (E D) P • The relationship between E D P and TR P , /E/1: TR ↑ when P↓ Elasticity of demand E< • PPP PPPPPPPnPPPP PPPPPPn E=1 E>1 PPPP P PnP PP  P TR P TR TR TR Elasticity of demand PnPPPP PPPPPPPPPP PP PPPPnP PP P P P - PPP PPPPPnPPgP PPPngPP Pn PPPnPPPP PPPPPPPng PPPP 1P PPPngP Pn PnPPPP - PPPPnPPP %∆Q I E = = Q '( I ) %∆I Q D I - PPP