KINH TẾ VI MÔ Chapter III quan nguyen

CHAPTER III. ELASTICITY
P

A

1%
B

?%
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Q


CHAPTER III. ELASTICITY

Contents
Elasticity of demand
Elasticity of supply

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CHAPTER III. ELASTICITY

Elasticity of demand
* Price elasticity of demand (EDP)

* Income elasticity of demand (EDI)
* Cross elasticity of demand (EDPy)

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CHAPTER III. ELASTICITY

Elasticity of demand
Price elasticity of demand (EPD)
•The percentage changed in quantity
demanded resulting from 1% change in
price

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CHAPTER III. ELASTICITY

Elasticity of demand
Price elasticity of demand (EPD)
•Point elasticity

•E.g: Demand curve: P = 18 – 2Q and point A

(P=6, Q=6)

What is price elasticity of demand at point A
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CHAPTER III. ELASTICITY

Elasticity of demand
Price elasticity of demand (EPD)
• Arc elasticity

• Eg: At price P=7.000VND, consumer buys 10kilos

of pork/ month. At price P= 6.000 VND, consumer
buys 15kilos/ month. What is price elasticity of
demand?
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CHAPTER III. ELASTICITY

Elasticity of demand
Conclusion:

Price elasticity of demand always:

•Unit – free and negative value

•Usually use absolute value

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CHAPTER III. ELASTICITY
Price elasticity of demand (EPD)
Inelastic demand

P
P2

- steep demand curve
- large change in price, small change in
quantity demanded
- Consumers are not very sensitive to
the change in price
- the goods is hard to replace
or necessity

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P1

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Q2 Q1

Q


CHAPTER III. ELASTICITY
Price elasticity of demand (EPD)
Elastic demand

P

- flat demand curve
- small change in price, large
change in quantity demanded
- Consumers are very sensitive
to the change in price
- the goods is easy to replace

P2

P1

Q2
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Q1

Q

CHAPTER III. ELASTICITY
Price elasticity of demand (EPD)
Unitary-elastic demand

- slope down demand curve
- %change in price equal to %
change in quantity demanded

P

P2
P1

Q2
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Q1

Q


CHAPTER III. ELASTICITY
Price elasticity of demand (EPD)
Perfectly Inelastic demand

P

- Demand curve is parallel to the

vertical axis
- Change in price doesn’t affect
on quantity demanded
- Consumers are not sensitive
to the change in price
- The good is irreplaceable
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Q1

Q


CHAPTER III. ELASTICITY
Price elasticity of demand (EPD)
Perfectly elastic demand
P

- Demand curve is parallel to the
horizontal axis
- Change in price affects totally on P1
quantity demanded
- Consumers are perfectly sensitive to
the change in price
- The good is in the perfect competition
market
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Q


CHAPTER III. ELASTICITY

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CHAPTER III. ELASTICITY
4. Factors effecting on EPD
•The

availability of substitutes goods

•The

characteristic of the goods

•The

time needed to find out the substitutes goods

•The

ratio of the spending in total income

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CHAPTER III. ELASTICITY
5. The relationship between
EPD, P and TR

E<1

E=1

E>1

P

TR?

TR?

TR?

P

TR?

TR?

TR = P x Q

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TR?


CHAPTER III. ELASTICITY
The relationship between
EPD, P and TR
/E/<1: P ↓ → TR ↓

Increase
P1

A
Decrease

P2

O

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B

Q1 Q2

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CHAPTER III. ELASTICITY
The relationship between EPD, P and TR
/E/>1: TR ↑ when P↓

Decrease

P1

Increase

P2

Q1
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Q2


CHAPTER III. ELASTICITY
5. The relationship between
EPD, P and TR

E<1

E=1

E>1

P

TR

TR =
const

TR

P

TR

TR =
const

TR = P x Q

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TR


CHAPTER III. ELASTICITY

Elasticity of demand

Income elasticity of demand (EID)
•The percentage changed in quantity demanded
resulting from 1% change in income

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CHAPTER III. ELASTICITY

Elasticity of demand
Inferior goods
No relationship with income
Normal goods
Essential goods
Luxury goods
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CHAPTER III. ELASTICITY

Elasticity of demand
Cross-elasticity of demand (EPyD)
•The percentage changed in quantity demanded
resulting from 1% change in price of related
goods

•
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CHAPTER III. ELASTICITY

Elasticity of demand
X & Y are complement goods
X & Y are independent goods
X & Y are substitute goods

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CHAPTER III. ELASTICITY

Elasticity of supply
Price elasticity of supply (EPS)
•The percentage changed in quantity supplied
resulting from 1% change in price

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CHAPTER III. ELASTICITY

Elasticity of supply
E=0: Perfectly inelastic supply
E<1: Inelastic supply
E>1: Elastic supply
E=1: Unitary elastic supply
E=∞: Perfectly elastic supply

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CHAPTER III. ELASTICITY

Elasticity of supply
Factors affecting on elasticity of supply:
•Time

needed to find substitutes resources for inputs
•Availability of inputs

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