Mikroekonomi Bab 4.ppt
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Transcript of Mikroekonomi Bab 4.ppt
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Elasticity
4
McGraw-Hill/Irwin Copyr ight 2012 by The McGraw -Hil l Comp anies, Inc. All r ights reserv ed.
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Price Elasticity of Demand
Measures buyers responsiveness toprice changes Elastic demand
Sensitive to price changes Large change in quantity
Inelastic demand Insensitive to price changes Small change in quantity
LO1
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Price Elasticity of Demand Formula
Formula for price elasticity of demand
Ed =
LO1
Percentage Change in QuantityDemanded of Product X
Percentage Change in Priceof Product X
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Price Elasticity of Demand Formula
Use the midpoint formula Ensures consistent results
Change in quantity Change in price
Sum of quantities / 2 Sum of prices / 2
LO1
Ed =
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Price Elasticity of Demand Formula
Use percentages Unit free measure Compare responsiveness across
products
Eliminate the minus sign
Easier to compare elasticities
LO1
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Extreme Cases
LO1
D1P
Perfectly inelastic demand
Perfectly
inelastic
demand
(Ed = 0)
0
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Extreme Cases
LO1
Perfectly elastic demand
P
D2
Perfectly
elastic
demand
(Ed = )
0
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Total Revenue Test
Total Revenue = Price x Quantity Inelastic demand
P and TR move in the samedirection
Elastic demand
P and TR move in oppositedirections
LO2
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Summary of Price Elasticity of Demand
LO2
Price Elasticity of Demand: A Summary
Absolute Value
of Elasticity
Coefficient Demand Is Description
Impact on Total Revenue of a:
Price Increase Price Decrease
Greater than 1
(Ed > 1)
Elastic or
relatively
elastic
Qdchanges by a
larger
percentage thandoes price
Total revenue
decreases
Total revenue
increases
Equal to 1
(Ed= 1)
Unit or unitary
elastic
Qd changes by
the same
percentage as
does price
Total revenue
is unchanged
Total revenue
is unchanged
Less than 1
(Ed< 1)
Inelastic or
relatively
inelastic
Qdchanges by a
smaller
percentage than
does price
Total revenue
increases
Total revenue
decreases
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Determinants of Elasticity of Demand
Substitutability More substitutes, demand is more elastic
Proportion of Income
Higher proportion of income, demand ismore elastic
Luxuries vs. Necessities
Luxury goods, demand is more elastic Time
More time available, demand is more elasticLO1
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Price Elasticity of Supply
Measures sellers responsiveness toprice changes Elastic supply, producers are
responsive to price changes Inelastic supply, producers are not
responsive to price changes
LO3
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Price Elasticity of Supply
Formula to compute elasticity Es> 1 supply is elastic E
s< 1 supply is inelastic
LO3
Percentage Change in Quantity
Supplied of Product X
Percentage Change in Price
of Product X
Es =
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Cross Elasticity of Demand
Measures responsiveness of sales tochange in the price of another good
Substitutespositive sign Complementsnegative sign Independent goods - zero
LO4
Percentage change in quantity demanded of product X
Ex,y=
Percentage change in price of product Y
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Income Elasticity of Demand
Measures responsiveness of buyersto changes in income Normal goodspositive sign
Inferior goodsnegative sign
LO4
Percentage change
in quantity demanded
Ei=
Percentage change in income
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Ex,yand Ei
LO4
Cross and Income Elasticities of Demand
Value ofCoefficient Description Type of Good(s)
Cross elasticity:
Positive (Ewz > 0)
Negative (Exy< 0)
Quantity demanded of W changes in same
direction as change in price of Z
Quantity demanded of X changes in
opposite direction from change in price of Y
Substitutes
Complements
Income elasticity:
Positive (Ei>0)
Negative (Ei