In this chapter you will learn the meaning of the elasticity of demand, examine what determines the elasticity of demand, learn the meaning of the elasticity of supply, examine what determines the elasticity of supply, apply the concept of elasticity in three very different markets. | Review of the previous lecture The supply curve shows how the quantity of a good supplied depends upon the price. According to the law of supply, as the price of a good rises, the quantity supplied rises. Therefore, the supply curve slopes upward. In addition to price, other determinants of how much producers want to sell include input prices, technology, expectations, and the number of sellers. If one of these factors changes, the supply curve shifts. Market equilibrium is determined by the intersection of the supply and demand curves. At the equilibrium price, the quantity demanded equals the quantity supplied. The behavior of buyers and sellers naturally drives markets toward their equilibrium. To analyze how any event influences a market, we use the supply-and-demand diagram to examine how the even affects the equilibrium price and quantity. Lecture 4 Elasticity Instructor: Abbas Course code: ECO 400 Lecture Outline Elasticity of demand Elasticity of supply . | Review of the previous lecture The supply curve shows how the quantity of a good supplied depends upon the price. According to the law of supply, as the price of a good rises, the quantity supplied rises. Therefore, the supply curve slopes upward. In addition to price, other determinants of how much producers want to sell include input prices, technology, expectations, and the number of sellers. If one of these factors changes, the supply curve shifts. Market equilibrium is determined by the intersection of the supply and demand curves. At the equilibrium price, the quantity demanded equals the quantity supplied. The behavior of buyers and sellers naturally drives markets toward their equilibrium. To analyze how any event influences a market, we use the supply-and-demand diagram to examine how the even affects the equilibrium price and quantity. Lecture 4 Elasticity Instructor: Abbas Course code: ECO 400 Lecture Outline Elasticity of demand Elasticity of supply Applications of supply demand elasticity Elasticity Allows us to analyze supply and demand with greater precision. It is a measure of how much buyers and sellers respond to changes in market conditions The Elasticity Of Demand Price elasticity of demand is a measure of how much the quantity demanded of a good responds to a change in the price of that good. Price elasticity of demand is the percentage change in quantity demanded given a percent change in the price. The Price Elasticity of Demand and Its Determinants Availability of Close Substitutes Necessities versus Luxuries Definition of the Market Time Horizon Demand tends to be more elastic : the larger the number of close substitutes. if the good is a luxury. the more narrowly defined the market. the longer the time period. Price Elasticity The price elasticity of demand is computed as the percentage change in the quantity demanded divided by the percentage change in price. Example: If the price of an ice cream cone increases from .
