TAILIEUCHUNG - Lecture Economics - Chapter 5: Price elasticity of demand and supply

Upon completion of this lesson, the successful participant will be able to understand: What happens to the sales of Mercedes, BMW’s and Jaguars in the . if Congress prevents sales of luxury Japanese cars in this country? How sensitive is the quantity of cigarettes demanded to changes in the price of cigarettes? Can total revenue from a Steel Porcupines concert remain unchanged, regardless of changes in the ticket price? | Chapter 5 Price Elasticity of Demand and Supply Key Concepts Summary Practice Quiz Internet Exercises ©2000 South-Western College Publishing In this chapter, you will learn to solve these economic puzzles: Can total revenue from a Steel Porcupines concert remain unchanged, regardless of changes in the ticket price? How sensitive is the quantity of cigarettes demanded to changes in the price of cigarettes? What happens to the sales of Mercedes, BMW’s and Jaguars in the . if Congress prevents sales of luxury Japanese cars in this country? * How is the percent increase or decrease of two numbers calculated? Percent change is the difference between the two numbers divided by the original number * Suppose the price of a rock concert increases by 10%, what effect will this have on sales? That all depends on the price elasticity of demand for this rock concert * What is Elasticity? A term economists use to describe responsiveness, or sensitivity, to a change in price * What is Price Elasticity of Demand? The ratio of the percentage change in the quantity demanded of a product to a percentage change in its price * % in Q demanded % in price Ed = Price Elasticity of Demand * Supposing a university’s enrollment drops by 20% because tuition rises by 10%, what is the Price Elasticity of Demand? * Ed = -20% +10% = +.10 = 2 * Why is Elasticity 2 in the previous example and not -2? Economists drop the negative sign because we know from the law of demand that quantity demanded and price are inversely related * If there is an increase from 3 units to 5, what is the percentage increase? 2/3 = 66% * If there is a decrease from 5 units to 3, what is the percentage decrease? 2/5 = 40% * Problem - When we move along a demand curve between two points, we get different answers to elasticity depending on whether we are moving up or down the demand curve * A B 2 3 P Q D * Economists can solve this problem of different base .

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