Overview 1 Chapter 4 introduces the concept of elasticity (including price elasticity of demand, income elasticity, cross-price elasticity, and price elasticity of supply). It presents elasticity as an extension of the supply and demand model presented in Chapter 3. The effects of price elasticity of demand on total revenue and total expenditures is discussed and explored graphically Chapter 4: Elasticity Slide 6
MB MC Chapter 4: Elasticity Slide 6 Overview 1 ◼ Chapter 4 introduces the concept of elasticity (including price elasticity of demand, income elasticity, cross-price elasticity, and price elasticity of supply). It presents elasticity as an extension of the supply and demand model presented in Chapter 3. The effects of price elasticity of demand on total revenue and total expenditures is discussed and explored graphically
Overview 2 The chapter discusses the interpretation of croSs-price elasticity and Income elasticity in terms of what they tell us about people's preferences for various goods. Finally, the chapter investigates price elasticity of supply and how it can be used to investigate firms production processes Chapter 4: Elasticity Slide 7
MB MC Chapter 4: Elasticity Slide 7 Overview 2 ◼ The chapter discusses the interpretation of cross-price elasticity and income elasticity in terms of what they tell us about people’s preferences for various goods. Finally, the chapter investigates price elasticity of supply and how it can be used to investigate firms’ production processes
Elasticity a What do you think? Could reducing the supply of illegal drugs cause an increase in drug related burglaries? Chapter 4: Elasticity Slide 8
MB MC Chapter 4: Elasticity Slide 8 Elasticity ◼ What do you think? ⚫ Could reducing the supply of illegal drugs cause an increase in drugrelated burglaries?
The Effect of Extra Border Patrols on the Market for Illicit Drugs Total Expenditure= PXQ S$2500 $50X50 $3200 $80x40 80 50 D 50 Q(1, 000s of ounces/day) Chapter 4: Elasticity Slide 9
MB MC Chapter 4: Elasticity Slide 9 The Effect of Extra Border Patrols on the Market for Illicit Drugs Q(1,000s of ounces/day) P($/ounce) 50 50 S D 80 40 S’ Total Expenditure = P x Q S $2500 = $50 x 50 S’ $3200 = $80 x 40
Elasticity a Elasticity A measure of the extent to which quantity demanded and quantity supplied respond to variations in price, income, and other factors Chapter 4: Elasticity Slide 10
MB MC Chapter 4: Elasticity Slide 10 Elasticity ◼ Elasticity ⚫ A measure of the extent to which quantity demanded and quantity supplied respond to variations in price, income, and other factors