Bài giảng MicroEconomics - Chapter 06 Elasticity, Consumer Surplus, and Producer Surplus

Elasticity, Consumer Surplus, and Producer SurplusChapter 6McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.Chapter ObjectivesPrice elasticity of demand The total revenue test Price elasticity of supplyCross elasticity of demand Income elasticity of demandConsumer & producer surplusEfficiency losses6-2Price Elasticity of DemandMeasuring responsiveness to price changes Elastic demandLarge change in quantity purchased for given price changeInelastic demandSmall change in quantity purchased for given price change6-3Price Elasticity of DemandPrice-elasticity coefficient and formulaPercentage Change in QuantityDemanded of Product XPercentage Change in Priceof Product XEd =6-4Price Elasticity of DemandCalculate percentage changeRestate formulaChange in Quantity Demanded of XOriginal Price of XEd =Change in Price of XOriginal Quantity Demanded of X÷6-5Price Elasticity of DemandCalculation problemStarting point mattersMidpoint formulaChange in QuantityEd =Sum of Quantities/2÷Change in PriceSum of Prices/26-6Interpretations of ElasticityElastic DemandInelastic DemandUnit ElasticityEd = .04.02 = 2Ed = .01.02 = .5Ed = .02.02 = 16-7Price Elasticity of DemandWhy use percentages?Unit free measureCompare responsiveness across productsElimination of the (-) signExtreme casesPerfectly inelastic demandPerfectly elastic demand6-8The Total Revenue TestTotal Revenue = TR = PxQInelastic demandP and TR change in same directionElastic demandP and TR change in opposite direction6-9$3210 10 20 30 40QPLower price and elastic demandBlue gain exceeds gold lossabD1The Total Revenue Test6-10$43210 10 20 QPLower price and inelastic demandGold loss exceeds blue gaincdD2The Total Revenue Test6-11$3210 10 20 30 QPLower price and unit-elastic demandBlue gain equals yellow lossefD3The Total Revenue Test6-12]]]]]]]Elasticity on a Linear Demand Curve12345678$876543215.002.601.571.000.640.380.20$8,00014,00018,00020,00020,00018,00014,0008,000ElasticElasticElasticUnit ElasticInelasticInelasticInelastic(1)Total Quantity ofTickets DemandedPer Week, Thousands(2)Price Per Ticket(3)ElasticityCoefficient (Ed)(4)Total Revenue(1) X (2)(5)Total-RevenueTest]]]]]]]6-13Elasticity and the TR Curve012345678012345678Quantity DemandedQuantity DemandedPriceTotal Revenue(Thousands of Dollars)$2018161412108642$87654321abcdefghElasticEd > 1Unit ElasticEd = 1InelasticEd < 1DTR6-14Determinants of Elasticity SubstitutabilityMore substitutes, more elastic demandProportion of incomePrice relative to incomeLuxuries versus necessitiesLuxuries are more elasticTimeMore elastic in the long run6-15Applications of Elasticity Large crop yieldsInelastic demandExcise taxesInelastic demandDecriminalization of illegal drugsElastic or inelastic demand?6-16Price Elasticity of SupplyPercentage Change in QuantitySupplied of Product XPercentage Change in Priceof Product XEs =Responsiveness to price changes by producers6-17Price Elasticity of SupplyMarket periodPerfectly inelastic supplyShort runFixed plant sizeLong runAdjustable plant sizeSupply more elastic6-18PQPrice Elasticity of SupplyThe Market Period Perfectly inelastic supplyD1D2SmQ0PmP0GreatestPriceImpact6-19Price Elasticity of SupplyThe Short Run Inelastic supplyPQD1D2SsQ0PsP0QsLowerPriceImpact6-20Price Elasticity of SupplyThe Long Run Elastic supplyPQD1D2SlQ0PlP0QlLeastPriceImpact6-21Price Elasticity of SupplyApplicationsAntiques and reproductionsLimited, inelastic supplyStrong demandResulting high priceVolatile gold pricesInelastic supplyShifting demand6-22Cross Elasticity of DemandResponsiveness of sales to change in price of another goodPercentage Change in QuantityDemanded of Product XPercentage Change in Priceof Product YExy =6-23Cross Elasticity of DemandSubstitute goodsPositive sign Complementary goodsNegative signIndependent goodsZero 6-24Income Elasticity of DemandResponsiveness of sales to change in incomeNormal goods – positive signInferior goods– negative sign Percentage Change in QuantityDemandedPercentage Change in IncomeEi =6-25Consumer SurplusBenefit surplusMaximum willingness to pay (WTP) less than actual price paidPerson Max WTP Actual Price CSBob $13 $8 $5Barb $12 $8 $4Bill $11 $8 $3Bart $10 $8 $2 Brent $9 $8 $1Betty $8 $8 $06-26Consumer SurplusDPrice (Per Bag)P1Q1Quantity (Bags)ConsumerSurplusEquilibrium Price = $86-27Producer SurplusBenefit surplusActual price received more than minimum acceptable price (AP)Person Min AP Actual Price PSCarlos $3 $8 $5Courtney $4 $8 $4Chuck $5 $8 $3Cindy $6 $8 $2 Craig $7 $8 $1Chad $8 $8 $06-28Producer SurplusSPrice (Per Bag)P1Q1Quantity (Bags)ProducerSurplusEquilibrium Price = $86-29Efficiency RevisitedProductive and allocative efficiencyDSPrice (Per Bag)P1Q1Quantity (Bags)ConsumerSurplusProducerSurplusEquilibrium Price = $86-30Efficiency LossDeadweight lossDSPrice (Per Bag)P1Q1Quantity (Bags)EfficiencyLossesQ2Q36-31Elasticity and Pricing PowerCompetitive marketsNo pricing powerFirms with market powerCharge different pricesDifferences in group elasticitiesBusiness vs. leisure travelersDiscounting for childrenCollege tuition6-32Key Termsprice elasticity of demandmidpoint formulaelastic demandinelastic demandunit elasticityperfectly inelastic demandperfectly elastic demandtotal revenue (TR)total-revenue testprice elasticity of supplymarket periodshort runlong runcross elasticity of demandincome elasticity of demandconsumer surplusproducer surplusefficiency losses (deadweight losses)6-33Next Chapter PreviewConsumer Behavior6-34