Browse Course Material
Course info.
- Prof. Jonathan Gruber
Departments
As taught in.
- Microeconomics
Learning Resource Types
Principles of microeconomics.
« Previous | Next »
Session Overview
| Everyone knows the unpleasant feeling that results from the price of something you’ve been longing to buy increasing – or the excitement of seeing your favorite snack go on sale! When the price of a good changes, consumers’ demand for that good changes. We can understand these changes by graphing supply and demand curves and analyzing their properties.
|
Keywords : Elasticity; revenue; empirical economics; demand elasticity; supply elasticity.
Session Activities
Before watching the lecture video, read the course textbook for an introduction to the material covered in this session:
- [R&T] Chapter 5, “Elasticity: A Measure of Response.”
- [ Perloff ] Chapter 3, “Applying the Supply-and-Demand Model.” (optional)
Lecture Videos
- Download video
- Download transcript
- Graphs and Figures (PDF)
Further Study
A vertical demand curve means that if the supply curve shifts, only the price changes; there is no change in quantity demanded.
When a good has a perfect substitute (for example, hamburgers at different fast food chains), then if there is a price increase at one store, consumers will simply switch to purchasing from another store. This results in a perfectly elastic demand curve. A good that has no substitutes will have perfectly inelastic demand. The existence of complementary goods and the nature of the supply curve do not affect the elasticity of demand.
Being in the hospital is correlated with being ill, because primarily ill patients are admitted to the hospital, but this is not the cause of the illness. The primary challenge of empirical economics is to distinguish correlation and causation.
The elasticity of demand does not change when price changes, and we have not discussed any change on the supply side. If revenue is declining that means that consumers are shifting away from this firms good (now that is newly expensive) and purchasing goods made by other firms, not vice versa.
Any shock to the supply of a good caused by weather or government policy will shift the supply curve, and this will allow us to use the resulting changes in price and quantity sold to estimate the elasticity of demand.
You are leaving MIT OpenCourseWare
IMAGES
VIDEO
COMMENTS
modity, holding money income and prices of related goods constant.(Price) elasticity of demand is the relative difference in the dependent variable (here, quantity) divide. by the relative difference in independent variable (here, price). Alternatively, it is define. as the absolute value of the ratio of percentage cha.
come:After completing this module the students will be a. e to:Understand the various concepts of Eelasticity of demand.Use the concept. cing and costing decisions.1.0 Concept of Elasticity of DemandLaw of demand tells the type of relationship between price and quantity demanded and illustrate that a fall in pr.
Then the price elasticity of demand for pork is… The own-price elasticity of demand is generally negative (when price rises, quantity falls). Economists sometimes drop the minus sign, because we know that the elasticity is negative,… but I will keep the minus sign most of the time! Elasticity of Demand>Example Pork p 11 Example: Pork
elasticity of demand. For most consumer goods and services, price elasticity tends to be between .5 and 1.5. As the price elasticity for most products clusters around 1.0, it is a commonly used rule of thumb.91 A good with a price elasticity stronger than negative one is said to be "elastic;" goods with price elasticities
16 PRICE ELASTICITY OF DEMAND. 16PRICE ELASTICITY OF DEMANDYou learnt that the law of demand which explains the inverse relationship between price and qua. tity demanded of a commodity. The law of demand explains only direction of change in quantity demanded but does not tell us by how much amount the quantity demanded chang. s due to change in ...
PRICE ELASTICITY OF DEMAND : • It is defined as a measurement of percentage change in quantity demanded in response to a given percentage change in own price of the commodity. • It is denoted by 'E d'. DEGREES OF PRICE ELASTICITY OF DEMAND : 1. Perfectly Elastic Demand 2. Perfectly Inelastic Demand 3. Unitary Elastic Demand 4.
When the good is a luxury rather than a necessity. In the long run rather than the short run. Supply is more elastic under the following circumstances. When producers are able to adjust their output easily. In the long run rather than the short run. Producers can change the scale of their production.
Elasticity of Demand. The Midterm 1 Practice Exam will be posted on course website (Classes > Exams) on Wednesday evening. Practice Exam answers will be during the weekend. So far we've seen that... On the demand curve, when the price rises, the quantity demanded falls. On the supply curve, when the price rises, the quantity supplied increases.
Price elasticity of demand 1. If the price rises by 3 %, the quantity demanded falls by 1.5 %. Calculate the price elasticity of demand. If the price falls from 6 to 4, the quantity demanded rises from 8000 to 12000. Calculate the price elasticity of demand by using midpoints. What happens to turnover (Price * Quantity) due to the price change?
Ø 2. Implies buyers and sellers are price takers. Undifferentiated Products: consumers perceive the product to be identical so don't care who they buy it from. Perfect Information about price: consumers know the price of all sellers. Equal Access to Resources: everyone has access to the same technology and inputs.
2.3.1 Determinants of Demand by a Consumer. The demand for commodity or the quantity demanded of a commodity on the part of the consumer is dependent on a number of factors. These are mentioned as follows: Price of the commodity in question. Prices of other related commodities. iii) Income of the consumers, and.
The coefficient of elasticity of demand is greater than unity. 4. Relatively Inelastic demand: A larger proportionate change in the price of a commodity results in a smaller proportionate change in its quantity demanded. The coefficient of elasticity of demand is greater than zero, but less than unity. 5.
4.8 Cross Elasticity of Demand 4.9 Income Elasticity of Demand 4.9.1 Classification of goods on the basis of Income Elasticity of Demand 4.10 Factors on which Elasticity Depends 4.11 Importance of the Concept of Elasticity of Demand 4.12 Let Us Sum Up 4.13 Key Words 4.14 Some Useful Books 4.15 Answers and Hints to Check Your Progress Exercises ...
The elasticity of demand does not change when price changes, and we have not discussed any change on the supply side. If revenue is declining that means that consumers are shifting away from this firms good (now that is newly expensive) and purchasing goods made by other firms, not vice versa. Question 5.
lesson, we will stick with elastic and inelastic demand curves. First, ask students to pick a product with lots of substitutes—preferably a product that most of your groups listed during the game. Once again, remind students of the laws of supply and demand, while drawing a conventional supply and demand curve for the product on the board ...