Bài giảng Understanding Economics - Chapter 3 Competitive Dynamics and Government

Understanding Economics2nd edition by Mark Lovewell and Khoa NguyenChapter 3Competitive Dynamics and GovernmentCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Elastic and Inelastic Demand (a)Price elasticity of demand shows how responsive consumers are to price changeselastic demand means % change in quantity demanded is more than % change in priceinelastic demand means % change in quantity demanded is less than % change in priceunit-elastic demand means % change in quantity demand equals % change in priceCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Elastic and Inelastic Demand (b)Figure 3.1 Page 56Elastic Demand Curvefor Ice Cream Cones 050010000.400.801.201.602.002.4020%50%20%10%Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.D1D2Quantity Demanded(cones)Price ($ per cone)Inelastic Demand Curvefor Ice cream Cones0.400.801.201.602.002.4005001000Quantity Demanded(cones)Price ($ per cone)Perfectly Elastic and Perfectly Inelastic Demand (a)Perfectly elastic demand means constant price and a horizontal demand curvePerfectly inelastic demand means constant quantity demanded and a vertical demand curveCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Perfectly Elastic and Perfectly Inelastic Demand (b) Figure 3.2 Page 57Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Perfectly ElasticDemand Curvefor Soybeans01.60D3Quantity Demanded(tonnes)Price ($ per tonnes)Perfectly InelasticDemand Curvefor Insulin01000Quantity Demanded(litres)Price ($ per tonnes)D4Total Revenue and the Price Elasticity of DemandA price change causes total revenue to change in the opposite direction when demand is elasticA price change causes total revenue to change in the same direction when demand is inelasticA price change does not affect total revenue when demand is unit-elasticCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Revenue Changes with Elastic Demand Figure 3.3 Page 59Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Demand Curve for Videos1234505001000Quantity Demanded (videos rented each day)Price ($ to rent a video)1500ABCDRevenue Changes with Inelastic Demand Figure 3.4 Page 59Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Demand Curve for Amusement Park Rides1234502000600010 000EFGD40008000Quantity Demanded (riders each day)Price ($ per ride)Total Revenue and the Price Elasticity of Demand (c) Figure 3.5 Page 60Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Demand Elasticity and Changes in Total RevenueElastic DemandInelastic DemandUnit-Elastic DemandPriceChangeupdownupdownupdownChange inTotal RevenuedownupupdownunchangedunchangedDeterminants of the Price Elasticity of DemandThere are four determinants:portion of consumer incomes (products with smaller portions more inelastic)access to substitutes (products with more substitutes more elastic)necessities versus luxuries (more inelastic for necessities and more elastic for luxuries)time (more elastic with the passage of time)Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Calculating Price Elasticity of DemandA numerical value for price elasticity of demand (ed) is found by taking the ratio of the changes in quantity demanded and in price, each divided by its average value.In mathematical terms: ed = ΔQd ÷ average Qd Δprice ÷ average priceCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Elasticity and a Linear Demand Curve (a)A linear demand curve has a different price elasticity (ed) at every point.At high prices, the change in quantity demanded (price) is relatively large (small), giving a large ed.At low prices, the change in quantity demand (price) is relatively small (large), giving a small ed. Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Elasticity and a Linear DemandCurve (b) Figure 3.6 Page 62Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.0 123Quantity Demanded(millions of sodas)Market Demand and Supply Curves for MilkPrice ($ per soda)1 2345Market Demand Schedulesfor Sodas543210012345 9.002.331.000.430.11Price($ per soda)4PriceElasticityof Demand(ed)QuantityDemanded(millions of sodas)5ed > 1ed = 1ed < 1Income ElasticityIncome elasticity (ei) is the responsiveness of a product’s quantity demanded to changes in consumer income.In mathematical terms: ei = ΔQd ÷ average Qd ΔI ÷ average I Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Cross-Price ElasticityCross-price elasticity (ei) is the responsiveness of the quantity demanded of one product (x) to a change in price of another (y)In mathematical terms: exy = ΔQd ÷ average Qd ΔPy ÷ average Py Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Elastic and Inelastic SupplyPrice elasticity of supply measures the responsiveness of quantity supplied to price changeselastic supply means % change in quantity supplied is more than % change in priceinelastic supply means % change in quantity supplied is less than % change in priceCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Elastic and Inelastic SupplyFigure 3.7, Page 64Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Elastic Supply Curvefor Tomatos050010001234S1Quantity Supplied(kilograms per year)Price ($ per kilogram)0Inelastic Supply CurveFor Tomatos100 000120 000Quantity Supplied(kilograms per year)Price ($ per kilogram)1234S150%50%100%20%Perfectly Elastic and Perfectly Inelastic SupplyPerfectly elastic supply means constant price and a horizontal supply curvePerfectly inelastic supply means constant quantity supplied and a vertical supply curveCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Time and the Price Elasticity of Supply (a)Price elasticity of supply changes over three production periodssupply is perfectly inelastic in the immediate runsupply is either elastic or inelastic in the short runsupply is perfectly elastic for a constant-cost industry and very elastic for an increasing-cost industry in the long runCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Time and the Price Elasticity of Supply (b) Figure 3.8, Page 65Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Immediate-RunSupply Elasticityfor Strawberries0S1Quantity Supplied(kilograms per month)Price ($ per kilogram)S2750 0000Short-RunSupply ElasticityFor Strawberries11Quantity Supplied(millions kilograms per year)Price ($ per kilograms)2.502.009Time and the Price Elasticity of Supply (c)If strawberries are produced in a constant-cost industry:A higher price of strawberries raises production but not resource prices.As new businesses enter the industry in the long run due to a higher price of strawberries, this price is gradually pushed back down to its original level.Therefore the long-run supply curve for a constant-cost industry is perfectly elastic. Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Time and the Price Elasticity of Supply (d)If strawberries are produced in a increasing-cost industry:A higher price of strawberries raises production and also resource prices.As new businesses enter the industry in the long run due to a higher price of strawberries, this price is gradually pushed back down to its lowest possible level, but this level is higher than it was originally.Therefore the long-run supply curve for an increasing-cost industry is very elastic. Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Time and the Price Elasticity of Supply (d) Figure 3.8, Page 65Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Long-Run Supply Elasticity0Quantity Supplied(millions kilograms per decade)Price ($ per kilograms)S32.00S4Constant-cost IndustryIncreasing-cost IndustryCalculating Price Elasticity of SupplyA numerical value for price elasticity of supply (es) is found by taking the ratio of the changes in quantity supplied and in price, each divided by its average value.In mathematical terms: es = ΔQs ÷ average Qs Δprice ÷ average priceCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Price ControlsA price floor is a minimum price set above the equilibrium priceit results in a surplus in the marketA price ceiling is a maximum price set below the equilibrium priceit results in a shortage in the marketCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Agricultural Price SupportsPrice supports for agricultural goods are an example of a price floorthey help overcome unstable agricultural pricesfarmers win from these supportsconsumers and taxpayers lose from these supportsCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Reasons for Price SupportsFigure 3.9, page 68Market Demand and SupplySchedules for Wheat(millions of tonnes)Price($ per tonne)QuantitySuppliedQuantityDemandedCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.(D)(S0)(S1)140120100806010111213141413121110121110 9 8201201008060401401234567891011121314Quantity (millions of tonnes per year)0Price ($ per tonne)Market Demand and SupplyCurves for WheatS1S0DabEffects of Price SupportsFigure 3.11, page 700 58 59 60Quantity(millions of litres per year)Market Demand and Supply Curves for MilkPrice ($ per litre) .70 .901.101.30SD62surplusMarket Demand and SupplySchedules for Milk1.301.10 .90605961 60 62 58 (millions of litres)Price($ per litre)A price floorcreatesa surplus.61QuantitySupplied(S)QuantityDemanded(D)Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Rent ControlsRent controls are an example of a price ceilingthey keep down prices of controlled rental accommodationsome (especially middle-class) tenants win from these controlsother (especially poorer) tenants lose from these controlsCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Effects of Rent ControlsFigure 3.11, page 700Quantity(units rented per month) Market Demand and SupplyCurves for UnitsPrice ($ per unit) 300500700SDMarket Demand and SupplySchedules for Units 700500 300200017002300200025001500 (units rented per month)Price($ rent per month)A price ceilingcreatesa shortage. 1500 2000 2500shortage2300Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.QuantitySupplied(S)QuantityDemanded(D)Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Spillover Costs (a)Spillover costs are the negative external effects of producing or consuming a productadding these costs to private costs raises the supply curvethe preferred outcome is at a lower quantity than in a perfectly competitive marketgovernment intervention (e.g. an excise tax) can produce the preferred outcomeCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Spillover Costs (b)Figure 3.13, page 7201234567Millions of LitresMarket Demand Curve for StrawberriesDemand and SupplySchedules for GasolineQuantity DemandedQuantity SuppliedPrice($ per kg)65432Price ($ per kg)0.501.001.502.002.50(millions of litres)8abSpilloverCosts,ExciseTaxDS0S187654456782.502.001.501.000.05(D)(S0)(S1)Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Spillover Benefits (a)Spillover benefits are the positive external effects of producing or consuming a productadding these benefits to private benefits raises the demand curvethe preferred outcome is at a higher quantity than occurs in a perfectly competitive marketgovernment intervention (e.g. a consumer subsidy) can produce the preferred outcomeCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Spillover Benefits (b)Figure 3.14, page 7308910111213Thousands of StudentsDemand and Supply Curves for an Engineering EducationDemand and Supply Schedules for an Engineering EducationEnrollment DemandedQuantity SuppliedTuition($ per year)1011121314Tuition ($ per year)10002000300040005000(thousands of students)14ab6000SpilloverBenefits,StudentSubsidySD0D1891011126000500040003000200012111098(S0)(S1)(S)Getting More Than You Bargained For (a)Alfred Marshallwas the first to establish the use of demand and supply curvesdevised the notion of consumer surplus which is the difference between marginal benefit and price for each unit of a productThe notion of consumer surplus applies both to individual consumer and market demand curves:Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Getting More Than You Bargained For (b)Figure A, page 81Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.01234Quantity (pizzas per week)Consumer’s Demand Curve for PizzasConsumer’s DemandSchedule for PizzasQuantity Demanded(D)(pizzas)Total Benefit($)Price($ per pizza)12 1 9 26 3Price ($ per pizza)36912DA = $9B = $181221 (12 + 9)27 (12 + 9 + 6)A+B = Total BenefitB = Total expenditureGetting More Than You Bargained For (c)Figure B, page 82Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.024Quantity (thousands of pizzas)Consumer’s Demand Curve for PizzasMarket Demand Schedulefor PizzasQuantity Demanded(D)(thousands of pizzas)Price($ per pizza)16 0 11 506 100Price ($ per pizza)481216D261014A = $500,000B = $600,000A+B = Total BenefitB = Total ExpendituresThe Economic Role of GovernmentBesides intervening in private markets, Canadian governments have an independent role.Government programs include payments to adults with children, retirement funds for the elderly, unemployment insurance, welfare, higher education subsidies, free health care and schooling, and subsidized public housing.Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Federal Spending The main federal spending programs are:transfer payments to seniors (the Seniors Benefit)tax credits to low-income parents (the Child Tax Credit)transfer payments to the unemployed (Employment Insurance)pensions (the Quebec and Canada Pension Plans)Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Provincial and Territorial SpendingThe responsibilities of provincial and territorial governments include:health caresubsidies for post-secondary educationwelfare servicesThe federal government pays a portion of these costs through the Canada Health and Social Transfer (CHST).Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Government ExpendituresFigure A, Page 85Transfers to persons Benefits to the elderly Employment insurance benefitsTransfers to other levels of governmentSubsidies and other transfersCrown CorporationsDefenceGovernment operationsDebt charges23.311.723.620.23.89.923.041.5157.0Federal (1999-2000)($ billions)Goods and servicesTransfers to Persons Businesses GovernmentsDebt charges106.326.95.332.127.5198.1Provincial (1999($ billions)Goods and servicesTransfers to Persons Businesses ProvincesDebt Charges63.94.01.50.33.873.5Federal (1999-2000)($ billions)Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Taxation (a)Canadian governments use five main types of taxation:Personal income taxes are levied by both federal and provincial governments, and are based on four marginal federal tax rates (16%, 22%, 26%, and 29%).Sales taxes are levied by both federal and provincial governments, and are charged as a percentage of price on a wide range of products.Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Taxation (b)Excise taxes are levied by both federal and provincial governments, and are usually charged as a dollar amount per unit of quantity on particular products.Property taxes are charged by local governments on buildings and land.Corporate income taxes are paid by corporations to both federal and provincial governments as a percentage of annual profits.Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Tax Revenues for All Levels of Government Figure B, Page 86Personal income taxesSales and excise taxesProperty taxesCorporate income taxesMiscellaneous taxesPercent of Gross Domestic Product 14.3 5.5 3.5 3.2 10.9 37.4Percent ofTotal Taxes 38.2 14.7 9.4 8.6 29.1100.0Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Government Taxes and the Canadian Economy Figure C, Page 87192619301940195019601970198019902000010203040Taxes as a PercentageOf GDP (%) YearCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.LocalProvincialFederalDebates over Government’s Role (a)Taxes have increased significantly as a proportion of the total Canadian economy over the past few decades.Critics argue that taxes and some spending programs reduce productive activity.Critics also contend that many government programs are inequitable, and hampered by high administrative problems.Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Debates Over Government’s Role (b)Supporters of government admit that public spending and taxation are not as effective as they could be. But they argue that these problems need to be seen in perspective, given that private markets are also subject to a variety of flaws.Copyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.Understanding Economics2nd editionby Mark LovewellChapter 3The EndCopyright © 2002 by McGraw-Hill Ryerson Limited. All rights reserved.