![Page 1: CHAPTER 5 Elasticity - csus.edu · What you will learn in this chapter: Definition of elasticity ... Airline travel 2.4 Foreign travel 4.1 Price elasticity of demand < 1 Price elasticity](https://reader031.vdocuments.us/reader031/viewer/2022021823/5b4544207f8b9a75778b905f/html5/thumbnails/1.jpg)
CHAPTER 5Elasticity
![Page 2: CHAPTER 5 Elasticity - csus.edu · What you will learn in this chapter: Definition of elasticity ... Airline travel 2.4 Foreign travel 4.1 Price elasticity of demand < 1 Price elasticity](https://reader031.vdocuments.us/reader031/viewer/2022021823/5b4544207f8b9a75778b905f/html5/thumbnails/2.jpg)
2
What you will learn in this chapter:
Definition of elasticityprice elasticity of demandincome elasticity of demand andprice elasticity of supply
Factors that influence the size of elasticities
How elasticity affects the incidence of a tax, and who bears its burden?
![Page 3: CHAPTER 5 Elasticity - csus.edu · What you will learn in this chapter: Definition of elasticity ... Airline travel 2.4 Foreign travel 4.1 Price elasticity of demand < 1 Price elasticity](https://reader031.vdocuments.us/reader031/viewer/2022021823/5b4544207f8b9a75778b905f/html5/thumbnails/3.jpg)
3
Defining and Measuring Elasticity
The price elasticity of demand is the ratio of the percent change in the quantity demanded to the percent change in the price as we move along the demand curve.
![Page 4: CHAPTER 5 Elasticity - csus.edu · What you will learn in this chapter: Definition of elasticity ... Airline travel 2.4 Foreign travel 4.1 Price elasticity of demand < 1 Price elasticity](https://reader031.vdocuments.us/reader031/viewer/2022021823/5b4544207f8b9a75778b905f/html5/thumbnails/4.jpg)
4
The World Demand for Oil
![Page 5: CHAPTER 5 Elasticity - csus.edu · What you will learn in this chapter: Definition of elasticity ... Airline travel 2.4 Foreign travel 4.1 Price elasticity of demand < 1 Price elasticity](https://reader031.vdocuments.us/reader031/viewer/2022021823/5b4544207f8b9a75778b905f/html5/thumbnails/5.jpg)
5
Using the Midpoint Method to Calculate Elasticities
![Page 6: CHAPTER 5 Elasticity - csus.edu · What you will learn in this chapter: Definition of elasticity ... Airline travel 2.4 Foreign travel 4.1 Price elasticity of demand < 1 Price elasticity](https://reader031.vdocuments.us/reader031/viewer/2022021823/5b4544207f8b9a75778b905f/html5/thumbnails/6.jpg)
6
Some Estimated Price Elasticities of Demand
Good Price elasticity
Inelastic demand
Eggs 0.1Beef 0.4Stationery 0.5Gasoline 0.5
Elastic demand
Housing 1.2Restaurant meals 2.3Airline travel 2.4Foreign travel 4.1
Price elasticity of demand < 1
Price elasticity of demand > 1
![Page 7: CHAPTER 5 Elasticity - csus.edu · What you will learn in this chapter: Definition of elasticity ... Airline travel 2.4 Foreign travel 4.1 Price elasticity of demand < 1 Price elasticity](https://reader031.vdocuments.us/reader031/viewer/2022021823/5b4544207f8b9a75778b905f/html5/thumbnails/7.jpg)
7
Interpreting the Price Elasticity of Demand: How Elastic Is Elastic?Two Extreme Cases of Price Elasticity of Demand
perfectly inelastic
perfectly elastic
![Page 8: CHAPTER 5 Elasticity - csus.edu · What you will learn in this chapter: Definition of elasticity ... Airline travel 2.4 Foreign travel 4.1 Price elasticity of demand < 1 Price elasticity](https://reader031.vdocuments.us/reader031/viewer/2022021823/5b4544207f8b9a75778b905f/html5/thumbnails/8.jpg)
8
![Page 9: CHAPTER 5 Elasticity - csus.edu · What you will learn in this chapter: Definition of elasticity ... Airline travel 2.4 Foreign travel 4.1 Price elasticity of demand < 1 Price elasticity](https://reader031.vdocuments.us/reader031/viewer/2022021823/5b4544207f8b9a75778b905f/html5/thumbnails/9.jpg)
9
![Page 10: CHAPTER 5 Elasticity - csus.edu · What you will learn in this chapter: Definition of elasticity ... Airline travel 2.4 Foreign travel 4.1 Price elasticity of demand < 1 Price elasticity](https://reader031.vdocuments.us/reader031/viewer/2022021823/5b4544207f8b9a75778b905f/html5/thumbnails/10.jpg)
10
Interpreting the Price Elasticity of Demand: How Elastic Is Elastic?
Demand is:elastic if the price elasticity of demand is greater
than 1, inelastic if the price elasticity of demand is less
than 1, and unit-elastic if the price elasticity of demand is
exactly 1.
![Page 11: CHAPTER 5 Elasticity - csus.edu · What you will learn in this chapter: Definition of elasticity ... Airline travel 2.4 Foreign travel 4.1 Price elasticity of demand < 1 Price elasticity](https://reader031.vdocuments.us/reader031/viewer/2022021823/5b4544207f8b9a75778b905f/html5/thumbnails/11.jpg)
11
![Page 12: CHAPTER 5 Elasticity - csus.edu · What you will learn in this chapter: Definition of elasticity ... Airline travel 2.4 Foreign travel 4.1 Price elasticity of demand < 1 Price elasticity](https://reader031.vdocuments.us/reader031/viewer/2022021823/5b4544207f8b9a75778b905f/html5/thumbnails/12.jpg)
12
![Page 13: CHAPTER 5 Elasticity - csus.edu · What you will learn in this chapter: Definition of elasticity ... Airline travel 2.4 Foreign travel 4.1 Price elasticity of demand < 1 Price elasticity](https://reader031.vdocuments.us/reader031/viewer/2022021823/5b4544207f8b9a75778b905f/html5/thumbnails/13.jpg)
13
![Page 14: CHAPTER 5 Elasticity - csus.edu · What you will learn in this chapter: Definition of elasticity ... Airline travel 2.4 Foreign travel 4.1 Price elasticity of demand < 1 Price elasticity](https://reader031.vdocuments.us/reader031/viewer/2022021823/5b4544207f8b9a75778b905f/html5/thumbnails/14.jpg)
14
![Page 15: CHAPTER 5 Elasticity - csus.edu · What you will learn in this chapter: Definition of elasticity ... Airline travel 2.4 Foreign travel 4.1 Price elasticity of demand < 1 Price elasticity](https://reader031.vdocuments.us/reader031/viewer/2022021823/5b4544207f8b9a75778b905f/html5/thumbnails/15.jpg)
15
Elasticity and Total Revenue
■ A price effect: After a price increase, each unit sold sells at a higher price, which tends to raise revenue.■ A sales effect: After a price increase, fewer units are sold, which tends to lower revenue.
![Page 16: CHAPTER 5 Elasticity - csus.edu · What you will learn in this chapter: Definition of elasticity ... Airline travel 2.4 Foreign travel 4.1 Price elasticity of demand < 1 Price elasticity](https://reader031.vdocuments.us/reader031/viewer/2022021823/5b4544207f8b9a75778b905f/html5/thumbnails/16.jpg)
16
![Page 17: CHAPTER 5 Elasticity - csus.edu · What you will learn in this chapter: Definition of elasticity ... Airline travel 2.4 Foreign travel 4.1 Price elasticity of demand < 1 Price elasticity](https://reader031.vdocuments.us/reader031/viewer/2022021823/5b4544207f8b9a75778b905f/html5/thumbnails/17.jpg)
17
Elasticity and Total Revenue
If demand for a good is elastic, an increase in price reduces total revenue. (Sales effect > Price effect).
If demand for a good is inelastic, a higher price increases total revenue. (Price effect > Sales effect).
If demand for a good is unit-elastic, an increase in price does not change total revenue. (Sales effect = Price effect).
![Page 18: CHAPTER 5 Elasticity - csus.edu · What you will learn in this chapter: Definition of elasticity ... Airline travel 2.4 Foreign travel 4.1 Price elasticity of demand < 1 Price elasticity](https://reader031.vdocuments.us/reader031/viewer/2022021823/5b4544207f8b9a75778b905f/html5/thumbnails/18.jpg)
18
The Price Elasticity of Demand Changes Along the Demand Curve
![Page 19: CHAPTER 5 Elasticity - csus.edu · What you will learn in this chapter: Definition of elasticity ... Airline travel 2.4 Foreign travel 4.1 Price elasticity of demand < 1 Price elasticity](https://reader031.vdocuments.us/reader031/viewer/2022021823/5b4544207f8b9a75778b905f/html5/thumbnails/19.jpg)
19
What Factors Determine the Price Elasticity of Demand?
Whether Close Substitutes Are Available
Whether the Good Is a Necessity or a Luxury
Time
![Page 20: CHAPTER 5 Elasticity - csus.edu · What you will learn in this chapter: Definition of elasticity ... Airline travel 2.4 Foreign travel 4.1 Price elasticity of demand < 1 Price elasticity](https://reader031.vdocuments.us/reader031/viewer/2022021823/5b4544207f8b9a75778b905f/html5/thumbnails/20.jpg)
20
Other Demand Elasticities
Cross-Price ElasticitySubstitutesComplements
Income elasticity of demandNormal GoodsInferior Goods
![Page 21: CHAPTER 5 Elasticity - csus.edu · What you will learn in this chapter: Definition of elasticity ... Airline travel 2.4 Foreign travel 4.1 Price elasticity of demand < 1 Price elasticity](https://reader031.vdocuments.us/reader031/viewer/2022021823/5b4544207f8b9a75778b905f/html5/thumbnails/21.jpg)
21
Price Elasticity of Supply
The price elasticity of supply is a measure of the responsiveness of the quantity of a good supplied to the price of that good.
![Page 22: CHAPTER 5 Elasticity - csus.edu · What you will learn in this chapter: Definition of elasticity ... Airline travel 2.4 Foreign travel 4.1 Price elasticity of demand < 1 Price elasticity](https://reader031.vdocuments.us/reader031/viewer/2022021823/5b4544207f8b9a75778b905f/html5/thumbnails/22.jpg)
22
![Page 23: CHAPTER 5 Elasticity - csus.edu · What you will learn in this chapter: Definition of elasticity ... Airline travel 2.4 Foreign travel 4.1 Price elasticity of demand < 1 Price elasticity](https://reader031.vdocuments.us/reader031/viewer/2022021823/5b4544207f8b9a75778b905f/html5/thumbnails/23.jpg)
23
![Page 24: CHAPTER 5 Elasticity - csus.edu · What you will learn in this chapter: Definition of elasticity ... Airline travel 2.4 Foreign travel 4.1 Price elasticity of demand < 1 Price elasticity](https://reader031.vdocuments.us/reader031/viewer/2022021823/5b4544207f8b9a75778b905f/html5/thumbnails/24.jpg)
24
Factors that Determine the Price Elasticity of Supply
The Availability of Inputs
Time
![Page 25: CHAPTER 5 Elasticity - csus.edu · What you will learn in this chapter: Definition of elasticity ... Airline travel 2.4 Foreign travel 4.1 Price elasticity of demand < 1 Price elasticity](https://reader031.vdocuments.us/reader031/viewer/2022021823/5b4544207f8b9a75778b905f/html5/thumbnails/25.jpg)
25
Elasticity determines tax incidence:An Excise Tax Paid Mainly by Consumers
![Page 26: CHAPTER 5 Elasticity - csus.edu · What you will learn in this chapter: Definition of elasticity ... Airline travel 2.4 Foreign travel 4.1 Price elasticity of demand < 1 Price elasticity](https://reader031.vdocuments.us/reader031/viewer/2022021823/5b4544207f8b9a75778b905f/html5/thumbnails/26.jpg)
26
Elasticity determines tax incidence:An Excise Tax Paid Mainly by Producers
![Page 27: CHAPTER 5 Elasticity - csus.edu · What you will learn in this chapter: Definition of elasticity ... Airline travel 2.4 Foreign travel 4.1 Price elasticity of demand < 1 Price elasticity](https://reader031.vdocuments.us/reader031/viewer/2022021823/5b4544207f8b9a75778b905f/html5/thumbnails/27.jpg)
27
The End of Chapter 5
Coming attraction:Chapter 6:
Consumer and Producer Surplus