As the family's income increases, they can afford air travel.
A small increase in income can cause the family to fly.
As income expands, the demand for inferior goods decreases.
The example of macaroni and Air travel is a luxury good.
As a household's income increases, it is able to afford more variety in its meals.
The number of times that mac and cheese is purchased decreases.
The decline in consumption shows that mac and cheese is not as good as it could be.
The responsiveness of Domino's or Pizza Hut depends on the price of both goods.
A price rise in one good will cause the quantity demanded of that good to decline.
Demand for the substitute good will increase because consumers can purchase it for the same price as before.
Consumers will buy more pizza from Pizza Hut when the price of Domino's pizza goes up.
If the goods complement each other, the opposite is true.
A price increase in one good will make the consumption of both goods more expensive.
The consumption of both goods will decline.
A price increase for turkeys will cause the quantity demanded of both turkey and gravy to decline, and a price decrease for turkeys will cause the quantity demanded of both turkey and gravy to increase.
The elasticity of demand is negative.
If the price of basketballs goes up, it won't affect the quantity demanded of bedroom slippers.
The cross price elasticity is not positive or negative.
Cross price elasticity values are listed in Table 4.5.
The price of a 2- liter bottle of Mr. Pibb would fall from $1.49 to $1.29.
In the week before the price drop, a local store sells 60 boxes of Red Vines.
When the price of Mr. Pibb falls, we can calculate the elasticity of demand for Red Vines.
The percentage change in the quantity demanded of good RV is being measured in response to the percentage change.
A value of -1.99 is given by Solving for EC.
The result's negative value confirms our intuition that the decrease in the price of Mr. Pibb causes consumers to buy more Red Vines.
The answer helps us understand the experiment.
The prices for tennis players between the ages of 18 and 61 were doubled by the New York City Parks Department.
Single- pay passes for an hour of court time went from $7 to $15, while season passes went from $100 to $200.
Data from the Parks Department shows that fewer tennis permits were sold under the new prices.
Sales of season passes for most players fell by 40% in 2011.
We can use the data to understand if the price increase raised or lowered revenue.
The price elasticity of demand was calculated using the formula.
The coefficients for the one- day and annual passes are between 0 and -1, so demand is relatively inelastic.
When demand is inelastic and prices increase, total revenue should increase.
Tennis court revenues increased from 2010 to 2011.
Many tennis players in New York City were upset with the price increase.
The data shows that many tennis players decided to keep playing.
A hobby that many people enjoy is tennis.
The data confirmed that there are not many good substitute tennis players in New York City.
A college student eats ramen noodles twice a week and makes $300 a week working part time.
It is possible to simplify yields - 1.5, 1.25, and $650.
Normal goods have a positive income elasticity of demand, while inferior goods have a negative income elasticity of demand.
ramen noodles are an inferior good over this person's range of income, in this example, between $300 and $1,000 per week.
Your intuition should be confirmed by this result.
The higher the student's postgraduation income, the more they can replace ramen noodles with other meals that provide more sustenance and enjoyment.
Like consumers, sellers are sensitive to price changes.
The price elasticity of supply is different from the price elasticity of demand.
How much sellers respond to price changes is examined in this section.
The answer depends on the elasticity of supply.
Change in price is what oil must be refined for.
If it is difficult for oil companies to increase their output of gasoline, the quantity of gasoline supplied will not increase much even if the price increases a lot.
In this case, we say that the supply is unresponsive.
If the price increase is small and suppliers respond with more gasoline for sale, then the supply is elastic.
If it is easy to refine oil into gasoline, we will observe this outcome.
When supply can't respond to a change in price, it's inelas tic.
There is a fixed amount of land next to the ocean.
The supply of land can't adjust to the price of oceanfront property.
The price elasticity of supply is zero and the supply is inelastic.
The price elasticity of zero means that quantity supplied doesn't change as prices change.
It takes suppliers a long time to provide additional capacity when a cellular network becomes congested.
Purchase of land and additional construction costs are required to build new cell towers.
A local hot dog vendor can quickly add another cart.
The elasticity of the hot dog vendor's supply is greater than 1.
The law of supply states that there is a direct relationship between the price of a good and the quantity that a firm supplies.
The percentage change in the quantity supplied and the percentage change in the price are the same.
The relationship with a positive sign is reflected in the ES coefficients.
When we looked at the price elasticity of demand, we found that consumers have to consider a number of factors, including the cost of the item, the amount of time they have to make a decision, and the necessity or luxury of the item.
The degree of flexibility that producers have in bringing their product to the market is a critical difference.
Supply tends to be elastic when a producer can quickly ramp up output.
It is possible to maintain flexibility by having spare production capacity.
Producers can quickly meet changing price conditions with extra capacity.
Staying flexible can be done by the ability to store the good.
Changes in market conditions can be responded to more quickly by producers who have inventories of their products.
De Beers can change the quantity of diamonds it offers to the market as the price of diamonds fluctuates.
If demand is strong, hot dog vendors can move quickly from one street corner to another.
Businesses can't adapt to changing market conditions quickly.
Nine new holes can't easily be added to a golf course.
The owner of the golf course can't quickly increase the supply of golfing opportunities because of the constraint.
Businesses are stuck with what they have on hand.
A pastry shop can't bake more quickly if they run out of chocolate glazed doughnuts.
As we move from the immediate run to the short run and a price change persists through time, supply becomes more elastic.
A golf resort can squeeze extra production out of its current facility by staying open longer hours or moving tee times closer together, but those short- run efforts will not match the production potential of adding another golf course in the long run.
Figure 4.5 shows how the supply curve is mapped.
The supply curve is vertical in the immediate run.
There is no responsiveness when the price changes.
The supply curve goes from S1 to S2 to S3 as producers get more time to make adjustments.
The supply curve becomes flatter through time like the demand curve.
With both supply and demand, the most important thing to remember is that more time allows for greater adjustment, so the long run is always more elastic.
The price elasticity of supply can be calculated using a formula.
When a business owner has to decide how much to produce, it's useful to do that.
The elasticity of supply is a measure of how quickly the producer can change production.
Producers can quickly adjust production when supply is elastic.
Despite large swings in price, production tends to remain constant if supply is inelastic.
Supply is elastic because of increased flexibility and more time.
The supply curve is at Q1 right now.
Eventually, in the long run, the firm is able to produce more, and it moves to Q3 in response to higher prices.
Oil companies can't respond to ris ($100 - $50) quickly.
ES is 0.16.
The law of supply has a direct relationship between price and quantity.
The output rises as the price goes up.
The output increase is small and reflected in the coefficients.
Oil companies have a limited ability to respond quickly to rising prices because they can't easily change their production process.
The inability is reflected in a coefficients that is close to zero.
Suppliers can't change their output if they have a zero coefficient.
Suppliers are only able to respond in a limited capacity.
The price elasticity of supply is the percentage change in the quantity supplied and the percentage change in the price.
The flexibility of the manufacturing process and the length of time needed to ramp up production are some of the factors that affect the company's ability to change the amount it produces.
It will take many months for the company to increase production by 20%.
We can divide the percentage change in the quantity by the percentage change in the price using Equation 4.5.
This calculation shows that the ply is inelastic.
The firm is able to increase the quantity by 20% with time.
Supply is relatively elastic in the long run if we divide 20% by the percentage change in the price.
The interplay between supply and demand allows us to explain how the economy works.
We can conduct a deeper analysis of the world around us with an understanding of elasticity.
Suppose that we are concerned about what will happen to the price of oil as economic development spurs additional demand in China and India.
Oil producers have a limited ability to adjust production in response to rising prices, according to an examination of the price elasticity of supply.
Oil wells can be uncapped to meet rising demand, but it takes years to bring the new capacity online.
Storage of oil reserves is expensive.
The short- run supply of oil is elastic.
An increase in global demand from D1 to D2 will cause prices to go up from $50 to $90 per barrel.
Increasing oil production is difficult in the short run.
The short- run supply curve is inelastic.
In the long run, oil producers are able to bring more oil to the market when prices are higher, so the supply curve rotates clockwise, and the market price falls to $80 per barrel.
The interplay between the price elasticity of demand and the price elasticity of supply determines the magnitude of the price change.
We have to consider how supply responds to demand.
We can't just think about the short run consequences of demand and supply shifts; we have to think about how prices and quantity will change in the long run.
You can see the power of the supply and demand model with this knowledge.
As producers expand their production capacity, the price will fall to $80 per barrel in the long run.
A small pumpkin crop is caused by a bad growing season.
You can use elasticity to explain your answer.
How much would you spend in October and after Halloween?
Purchasing a pumpkin is a short- run decision to buy a unique product that takes up a relatively small share of the consumer's budget.
The price elasticity of demand for pumpkins leading up to Halloween tends to be quite inelastic.
A small crop causes the entire supply curve to shift left.
The supply of pumpkins is fixed and the demand is relatively inelastic, so we expect the price to rise significantly.
The price of pumpkins goes down after Halloween.
This misconception can now be addressed firmly: no.
Consumers like lower prices, but that doesn't mean sellers will charge the highest price possible.
Consumer demand is elastic at high prices.
A seller who charges too much will not sell much.
Firms learn that they need to lower their prices to attract more customers and maximize their revenue.
Calculating the effects of personal, business, and policy decisions can be done if demand and supply are elastic.
You get a very powerful tool when you combine the elasticity concept with the supply and demand model.
In the next chapters, we use elasticity to make our models more realistic.
Your knowledge of price elasticity can help you negotiate a better deal when buying a car.
If the number of available substitute and the time you have to make a decision are both indicators, the salesperson will give you a better deal.
Let's start with your budget.
Don't tell the salesperson when you want to move inventory because they have one in mind.
August is a good month to purchase because you are willing to spend.
You want to keep the price elastic.
When the dealer is trying to move inventory is too expensive, the salesperson suggests that you look at a different model.
If the salesper sales promotions and sales bonuses are tied to the son asking if you have a particular monthly payment to sell at that time, the salesperson will be more eager to sell at that time.
Don't negotiate on the sticker price, which is the price you see in the window, because it includes a lot of money.
You want the salesperson to know that the price you pay is important to you.
Make it clear that you are visiting other dealers.
reinforce that you have many alternatives.
Don't say you want a Honda to the salesperson.
You can also visit the Ford showrooms.
Take what you've seen on one lot and compare it to what you've seen on another.
Each salesperson should tell you that your demand is elastic and that getting your business will require the dealership to offer you a better price.
It's important to take your time to make a decision.
The first time you walk onto a lot, never buy a car.
If you want a car immediately, you are saying that your demand iselastic.
The staff will not give you their best offer if the dealership thinks you have no flexibility.
The elasticity of demand is a measure of responsiveness to a change in price.
If the item accounts for a large share of the consumer's budget, if the market is more narrowly defined, or if the consumer has plenty of time to make a decision, demand will generally be more elastic.
When there is no time for consumers to adjust their behavior, the immedi ate run, the short run, and the long run are what economists call these periods.
The price elasticity of demand is calculated by dividing the percentage change in the quantity demanded by the percentage change in the price.
If the price elasticity is zero, demand is said to be perfectly inelastic.
Demand is inelastic when the price elasticity is between 0 and 1.
Demand is elastic if the price elasticity is less than 1.
The item has unitary elasticity when the price elasticity is exactly -1, for example.
Income elasticity of demand is a measure of how income affects spending.
Goods with a positive income elasticity.
Goods with a negative income elasticity.
The cross price elasticity of demand is a measure of responsiveness to change in the price of a related good.
Positive values mean that the two goods are not replacements, while negative values mean that the two goods are not compatible.
The two goods are not related to each other if the cross price elasticity is zero.
The elasticity of supply is a measure of responsiveness to price changes.
If producers have enough time to adjust production, supply will be more elastic.
The price elasticity of supply is calculated by dividing the percentage change in the quantity supplied by the percentage change in the price.
It is perfectly inelastic.
Demand is inelastic when the price elasticity of supply is between 0 and 1.
Supply is elastic if the price elasticity is greater than 1.
The magnitude of the price change is determined by the interplay between the price elasticity of demand and the price elasticity of supply.
Define the price elasticity of demand.
An example of a good that has elastic supply is given.
An example of a normal good can be given.
Give a good that is inelastic.
An example of a good.
What is the income elasticity of this relationship?
Explain why slope is different from elasticity.
Define the elasticity of demand.
Define the elasticity of supply.
You can use elasticity to explain your answer.
It can sell relatively elastic, relatively inelastic, or per 50 T- shirts per week if it is marked as perfectly elastic by the bookstore.
The price is elastic.
The largest shopping day of the year is Black Friday, when peting shops charge 10 cents per copy.
A private university notices that in- state and enue of $8,000 a month when it charges $10 out- of- state students seem to respond different per person and total revenue when tuition changes.
The company makes 200,000 phones at a price of $150.
A worker at a restaurant eats once a week.
Every show follows coupon users throughout the week.
Determine the income elasticity of the week as they assemble coupons and scout demand for eating at a restaurant and stores to see which have the best deals.
Do extreme couponers have Hollister?
A hotel might raise the price of its bottled fees in order to make more money.
To answer this question, we need to consider the elasticity of demand.
The income elasticity of demand for food is related to the color of the shirt.
T- shirt restaurant is positive for normal goods.
Customers who buy other colors can avoid eating at a restaurant.
Your intuition should be confirmed by this result.
The government won't sell many gray T- shirts because the worker will get a 25% raise.